Assignment 2-Applying Decision-Making Skills

As a manager, part of your role is to develop strategy, and share this strategy with various stakeholders within the organization. This assignment will allow you to take your findings as a manager and communicate these findings to those who are affected.

Your company has been presented with a decision on replacing a piece of equipment for a new computerized version that promotes efficiency for the upcoming year. As manager you will need to decide whether or not the purchase of the new equipment is a worthwhile investment and to communicate your recommendations to Executive Management for a final decision. To be convincing, sufficient support for your recommendations must be provided in order to be considered valid and accepted.

Existing Equipment

Original Cost60,000

Present Book Value30,000

Annual Cash Operating Costs145,000

Current Market Value15,000

Market Value in Ten Years0

Remaining useful Life10 years

Replacement Equipment

Cost600,000

Annual Cash Operating Costs50,000

Market Value in Ten Years0

Useful Life10 years

Other Information

Cost of Capital10%

Payback requirement6 years

In this assignment, use the information above to develop a comprehensive analysis using NPV, Payback Method, and IRR to develop a recommendation on replacing the existing equipment with a new computerized version.

Include a statement of the problem or topic, a concise analysis of the findings, and a recapitulation of any main conclusions or recommendations.

Be sure to incorporate specific details to highlight or support the summary including calculations.

Using your knowledge of capital budgeting techniques, explain how principles of capital budgeting, such as the payback method, IRR, and NPV, can be used to assess the potential projects and assist in the decision-making process.