Capital Investment PowerPoint Presentation

October 14, 2022

Competency

Critique organizational investments using forecasting scenarios.

Scenario

You are a production manager for Gold Corporation, a manufacturing company that

manufactures bottles of liquid soap. The equipment you are using is over 20 years old, having

been purchased when liquid soap first entered the retail market. While the equipment still works,

you incur $100,000 annually in maintenance expenses because the equipment is old. You

presently produce 1 million cases of liquid soap per year. This soap sells for $3 per case. Given

the age of the equipment, you anticipate a decline in production of 50,000 cases in each of the

next five years because of breakdowns in the equipment. You have been researching new

production equipment and have found a new machine that will reduce annual operating costs to

$48,000 per year and allow an increase in production over the 1 million cases presently being

sold by sales and marketing. In conversations with sales and marketing, management believes

that they can increase sales by 1% per year for the next five years. The new machine will have a

fully loaded cost of $370,000, and an expected useful life of 5 years with no salvage value. The

old machine can be sold today as scrap for $5,000.

Instructions

Prepare a 6-10 slide PowerPoint presentation for management to demonstrate the following:

? Develop a schedule of projected cash flows using current equipment including the

reduction in future sales.

? Develop a schedule of projected cash flows using discounted cash flows for the proposed

new equipment.

? Analyze the projected cash flows and evaluate the feasibility of the proposed capital

investment.

? Make a recommendation on the course of action management of Gold Corporation should

take regarding the capital equipment used in this manufacturing process.

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