In this assignment you will demonstrate your understanding of capital investment techniques by evaluating the following three case studies.
You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related costs; however, as a fairly young company, the goal is to pay for the upgrade with cash and not to take out loans.
Right now, you have $300,000 in a bank account established for Capital Investments. This account pays 6% interest, compounded annually.
A member of the finance department has approached you with an investment opportunity for the $300,000 that covers a fiveyear period and has the following projected aftertax cash flows:
Year 
Projected Cash Flow 
1 
$94,000 
2 
$114,000 
3 
$134,000 
4 
$114,000 
5 
$94,000 
Based on this information, answer the following questions:
The CEO of Dynamic Manufacturing was at a conference and talked to a supplier about a new piece of equipment for its production process that she believes will produce ongoing cost savings. As the Operations Manager, your CEO has asked for your perspective on whether or not to purchase the machinery.
After talking to the supplier and meeting with your Engineers and Financial Analysts, you’ve gathered the following pieces of data:
From your JWMI MBA, you understand that you need to understand the project financials to ensure that this investment will be economically attractive to Dynamic Manufacturing’s shareholders.
Calculate the Nominal Payback, the Discounted Payback, the Net Present Value and the IRR (so 4 answers for each scenario) assuming:
Discussion – in a Word Document in paragraph form, respond to the following:
You are the General Manager at the Bicker, Slaughter, and Lynch Law Firm. There is an opportunity to buy out a small law firm that was just started by a young MBA/JD, and you believe the firm can be grown and become a lucrative part of your Firm.
With help from your finance leader, you have estimated the following benefit streams for this new division:
Year 1 
Year 2 
Year 3 
Year 4 
Year 5 
Year 6 
Year 7 
Year 8 

Before Tax Cash Flow From Operations 
$(149,000) 
$0 
$51,380 
$88,760 
$114,100 
$129,780 
$143,640 
$167,300 
After Tax Net Income From Operations 
$(103,500) 
$(50,500) 
$36,700 
$63,400 
$81,500 
$92,700 
$102,600 
$119,500 
After Tax Cash Flow From Operations 
$(85,600) 
$15,000 
$48,600 
$72,200 
;$95,550 
$101,300 
$125,200 
$140,200 
You estimate that the purchase price for this firm would be $200,000 and that additional net working capital would be needed in the amount of $60,000 in year 0, an additional $20,000 in year 2 and then $20,000 in year 5.
BSL usually spend about $275,000 per year in advertising. If you make this acquisition, you would ask that advertising spending be increased by an incremental onetime amount of $50,000 in year 0 to publicize the firm’s expansion.
Your finance leader has indicated that the firm has access to a credit line and could borrow the funds at a rate of 6%. He also mentions that when he runs project economics for capital budgeting (such as a new copier or a company car), he recommends a standard 10% rate discount, but the one other time they looked at an acquisition of a smaller firm, he used a 12% rate discount. Obviously you will want to select the most appropriate discount rate for this type of project.
At the end of 8 years, the plan will be to sell this division. The estimated terminal value (the sale and the return of working capital) is conservatively estimated to be $300,000 of aftertax cash flow help.
Using the data that you need (and ignoring the extraneous information), calculate the Nominal Payback, the Discounted Payback, the Net Present Value, and the IRR for this potential acquisition.
Discussion – in a Word Document in paragraph form, respond to the following:
Weight: 22.5% 
Assignment 2: Management Accounting Application 

Criteria 
Unsatisfactory 
Low Pass 
Pass 
High Pass 
Honors 
1. In Case Analysis 1, calculate the various investment options. Weight: 20% 
Did not demonstrate understanding by either not submitting the work or only calculating 1 question correctly. 
Partially demonstrated understanding by calculating a minimum of 2 questions correctly. 
Satisfactorily demonstrated understanding by calculating 3 questions correctly. 
Demonstrated a high level of understanding by calculating a minimum of 4 questions correctly. 
Exemplarily demonstrated understanding by calculating all 5 questions correctly. 
2. In Case Analysis 2, fully evaluate and support your conclusions in regards to the investment options by calculating the nominal payback, the discounted payback, the net present value, and the IRR and fully explain the financial rational for your recommendations. Weight: 30% 
Did not submit or incompletely analyzed the investment options and did not use financial knowledge and calculations to explain recommendations. 
Partially analyzed the investment options and partially used financial knowledge and calculations to explain recommendations. 
Satisfactorily analyzed the investment options and satisfactorily used financial knowledge and calculations to explain recommendations. 
Completely analyzed the investment options and used financial knowledge and calculations to explain recommendations. 
Exemplarily analyzed the investment options and exemplarily used financial knowledge and calculations to explain recommendations. 
Weight: 22.5% 
Assignment 2: Management Accounting Application 

Criteria 
Unsatisfactory 
Low Pass 
Pass 
High Pass 
Honors 
3. In Case Analysis 3, fully evaluate the buyout opportunity and support your conclusions by calculating the nominal payback, the discounted payback, the net present value, and the IRR for the potential acquisition and fully explain the financial rational for your recommendations. Weight: 40% 
Did not submit or incompletely analyzed the acquisition opportunity and incompletely used financial knowledge and calculations to explain recommendations. 
Partially analyzed the acquisition opportunity and partially used financial knowledge and calculations to explain recommendations. 
Satisfactorily analyzed the acquisition opportunity and satisfactorily used financial knowledge and calculations to explain recommendations. 
Completely analyzed the acquisition opportunity and used financial knowledge and calculations to explain recommendations. 
Exemplarily analyzed the acquisition opportunity and exemplarily used financial knowledge and calculations to explain recommendations. 
4. Professionally communicated: writing is clear, concise, and free of mechanical errors. Weight: 10% 
Written communication does not flow and fails to justify or express student assertions. Multiple mechanical errors or much of the communication is difficult to understand. 
Written communication does not flow or the discussion fails to justify conclusions and assertions. Several mechanical errors make parts of the text difficult to understand. 
Written communication flows but lacks conciseness or clarity; assertions and conclusions are generally justified and explained. There are more than a few mechanics errors. 
Written communication flows and concisely and clearly expresses the student’s position in a manner that rationally and logically develops the topics. There are a few mechanical errors. 
Written communication flows and concisely and clearly expresses the student’s position in an exemplary manner that rationally and logically develops the topics. It is free of mechanical errors. 
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