Question 1 Capital budgeting
Burger Queen Drive-In is considering a proposal to invest in a speaker system that would allow its employees to service drive-through customers. The cost of the system (including installation of special windows and drive-way modifications) is $28,000. Michele McDonald, manager of Burger Queen, expects the drive-through operations to increase annual sales by $14,000, with a 25% contribution margin ratio. Assume that the system has an economic life of 10 years, at which time it will have no disposal value. The required rate of return is 10%. Ignore taxes.
Use a spreadsheet to answer each part of this question. Use the Excel NPV function. As usual, paste a formula view.
1. Compute the payback period. Is it a good measure of profitability? Explain.
2. Compute the NPV. Should Michele accept the proposal? Why or Why not?
3. Using the ARR model, compute the rate of return on the initial investment.
4. Assume now: Cost of new speaker system $30,000, Cash operating cost savings per year $20,000, Contribution margin rate 30%
5. How is item 4 an example of sensitivity analysis? Explain.
Question 12 Business Report
Write a business report to management on the significance of two of the following to the function of management and accounting. About 300-400 words each. Use the Internet as a resource. Give examples to illustrate your report. Consider using screen shots to enhance your reports. Refer to the earlier section 'Assessment Information' for essay/report writing skill resources. The Internet can also be searched for advice on business report structures.
A. Spreadsheets
B. Black Swans (Taleb)
C. "Gray" ethical areas in accounting. See http://danariely.com/tag/ethics/
D. Six Sigma