07 May Shoals Corporation puts significant emphasis on cash flow when planning capital investments. The company chose its discount rate of 8 percent?bas
Shoals Corporation puts significant emphasis on cash flow when planning capital investments. The company chose its discount rate of 8 percent based on the rate of return it must pay its owners and creditors. Using that rate, Shoals Corporation then uses different methods to determine the most appropriate capital outlays.
This year, Shoals Corporation is considering buying five new backhoes to replace the backhoes it now owns. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.
The following information is available to use in deciding whether to purchase the new backhoes:
To complete this assignment, write a 3–5 page paper in which you address the following items:
- Evaluate, discuss, and compare whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.)
- Using Excel, calculate the net present value of the old backhoes and the new backhoes.
- Discuss the net present value of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes.
- Using Excel, calculate the payback period for keeping the old backhoes and purchasing the new backhoes. (Hint: For the old machines, evaluate the payback of an overhaul.)
- Discuss the payback method and what the payback periods of the old backhoes and new backhoes reveal about whether the company should purchase new backhoes or continue using the old backhoes. Calculate the profitability index for keeping the old backhoes and purchasing new backhoes.
- Discuss the profitability index of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes.
2. Identify and discuss any intangible benefits that might influence this decision.
3. Answer the following: Should the company purchase the new backhoes or continue using the old backhoes? Explain your decision.
This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.
The specific course learning outcome associated with this assignment is:
- Analyze the financial condition of a company using vertical, horizontal, and ratio analysis to make informed decisions.
|Old Backhoes||New Backhoes|
|Purchase cost when new||$90,000||$200,000|
|Salvage value now||$42,000|
|Investment in major overhaul needed in next year||$55,000|
|Salvage value in 8 years||$15,000||$90,000|
|Remaining life||8 years||8 years|
|Net cash flow generated each year||$30,425||$43,900|
HOW OUR WEBSITE WORKS
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of
HIGH QUALITY & PLAGIARISM FREE.
To make an Order you only need to click ORDER NOW and we will direct you to our Order Page at WriteDen. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Deadline range from 6 hours to 30 days.
Once done with writing your paper we will upload it to your account on our website and also forward a copy to your email.
Upon receiving your paper, review it and if any changes are needed contact us immediately. We offer unlimited revisions at no extra cost.
Is it Safe to use our services?
We never resell papers on this site. Meaning after your purchase you will get an original copy of your assignment and you have all the rights to use the paper.
Our price ranges from $8-$14 per page. If you are short of Budget, contact our Live Support for a Discount Code. All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.
Please note we do not have prewritten answers. We need some time to prepare a perfect essay for you.