Capital Investment Evaluation & Standard Cost System

Week 5 Discussions and Required Resources

Two-part assignment – All parts must be at least 200 words unless otherwise noted. Please read all attachments and follow ALL instructions.

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Part 1: Capital Investment Evaluation

Select one of the capital investment evaluation methods described in Chapter 10 of your text. Fully explain the capital evaluation method’s strengths and weaknesses. Take a position and defend the use of your selected method. Be sure to use at least two scholarly sources to support your position. Your initial post should be 200-250 words.

Part 2:  Standard Cost System – chart in attachement

(Problem 10-41) Grosvenor Industries has designated $1.2 million for capital investment expenditures during the upcoming year.  Its cost of capital is 14 percent.  Any unused funds will earn the cost of capital rate.  The following investment opportunities along with their required investment and estimated net present values have been identified:

 

Project

Net Investment

NPV

Project

Net Investment

NPV

 

A

$200,000

$22,000

F

$250,000.00

$30,000.00

 

B

$275,000

$21,000

G

$100,000.00

$7,000.00

 

C

$150,000

$6,000

H

$200,000.00

$18,000.00

 

D

$190,000

-$19,000

I

$210,000.00

$4,000.00

 

E

$500,000

$40,000

J

$250,000.00

$35,000.00

In your response, complete the following:

  • Rank the projects using the profitability index. Considering the      limit on funds available, which projects should be accepted?
  • Using the NPV, which projects should be accepted, considering the limit on funds available?
  • If the available investment funds are reduced to only $1,000,000:
  • Does the list of accepted projects change from Part 2?
  • What is the opportunity cost of the eliminated $200,000?

Required Resource

Text

Schneider, A. (2017). Managerial Accounting: Decision making for the service and manufacturing sectors (2nd ed.) [Electronic version]. Retrieved from https://content.ashford.edu/

· Chapter 9:  Managerial Decisions: Analysis of Relevant Information

· Chapter 10:  Capital Investment Decisions

Article

Perkins, C. and Brizee, A. (2011). Sample memo (Links to an external site.). Purdue Online Writing Lab. Retrieved from http://owl.english.purdue.edu/owl/resource/590/04/

Recommended Resource

Article

Finch, J. H. & Fullmer, Jr., J. G. (1997). Evaluating on-going projects and divisions. Managerial Finance, 23(9), 46.