CASE STUDY 2<\/p>\n
Spring 2022 B2<\/p>\n
Proposal Analysis<\/p>\n
As the newly hired analyst for the corporate offices of Illuminated Electronics Corporation (IEC), you must prepare an analysis of a capital budgeting proposal. <\/p>\n
Proposal 1 \u2013 PPD<\/p>\n
IEC has just developed a new electronic device (called the PPD) and it believes it will have broad market appeal. The company has performed marketing and cost studies that revealed the following information:<\/p>\n
A) New equipment would have to be acquired to produce the device. The equipment would cost $315,000 and have a six-year useful life. After six years, it would have a salvage value of about $15,000.<\/p>\n
B) Sales in units over the next six years are projected to be as follows:<\/p>\n
Year<\/p>\n
Sales in Units<\/p>\n
\u20031<\/p>\n
\u20029,000<\/p>\n
\u20032<\/p>\n
15,000<\/p>\n
\u20033<\/p>\n
18,000<\/p>\n
4\u20136<\/p>\n
22,000<\/p>\n
C) Production and sales of the device would require working capital of $60,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the project\u2019s life.<\/p>\n
D) The devices would sell for $35 each; variable costs for production, administration, and sales would be $15 per unit.<\/p>\n
E) Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $135,000 per year. (Depreciation is based on cost less salvage value).<\/p>\n
F) To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be:<\/p>\n
Year<\/p>\n
Amount of Yearly Advertising<\/p>\n
\u00a0<\/p>\n
1\u20132<\/p>\n
$180,000 <\/p>\n
\u20033<\/p>\n
$150,000 <\/p>\n
4\u20136<\/p>\n
$120,000 <\/p>\n
G) The company\u2019s required rate of return in 14%.<\/p>\n
Proposal 2 \u2013 NED<\/p>\n
One of your colleagues has provided an analysis of a competing proposal and concluded the following:<\/p>\n
NPV = $120,000; IRR = 15.5%; Payback Period = 3.5 years, Profitability Index = 1.25<\/p>\n
Required:<\/p>\n
1) Compute the net cash inflow (incremental contribution margin minus incremental fixed expenses) anticipated from the sale of the PPDs for each year over the next six years.<\/p>\n
2) Using the data computed (1) and other data provided in the problem, determine the net present value, internal rate of return, payback period, and profitability index of the proposed investment.<\/p>\n
3) Using the analysis performed in (2), prepare \u201cbest\u201d and \u201cworst\u201d case scenarios using the following assumptions:<\/p>\n
a) Best Case \u2013 Projected sales expectations increase by 10%, required rate of return falls to 7%.<\/p>\n
b) Worst Case \u2013 Projected sales decreases by 10%, required rate of return increases to 15%.<\/p>\n
4) Write a memo to the CFO of IEC providing your analysis and recommendation regarding the PPDs. Be sure to compare your results to the competing proposal. Include a strong recommendation for or against the acceptance of the new PPDs into IEC\u2019s product line.<\/p>\n","protected":false},"excerpt":{"rendered":"
CASE STUDY 2 Spring 2022 B2 Proposal Analysis As the newly hired analyst for the corporate offices of Illuminated Electronics Corporation (IEC), you must prepare an analysis of a capital budgeting proposal. Proposal 1 \u2013 PPD IEC has just developed a new electronic device (called the PPD) and it believes it will have broad market […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[10],"class_list":["post-96485","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-writing"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/96485","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=96485"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/96485\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=96485"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=96485"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=96485"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}