The Capital Investment

 

 

 

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:
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
Instructions
To complete this assignment, write a 3–5 page paper in which you address the following items:
1. 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.

Sample Solution

In this exposition I will examine the associations between authority, inspiration and cooperation speculations, how they interface with training in associations and their impediments, offering arrangements where difficulties emerge. The exposition expects to make determinations on the appropriateness of Fiedler’s Contingency Theory of Leadership, Tuckman’s Model of Group Development, Belbin’s Team Theory, and Herzberg’s Two Factor Theory practically speaking, and how intricacies like power and impact shape how they can be applied to best suit what is happening a pioneer faces.

Initiative Contingency based hypotheses of authority recommend that there is no right or most ideal way to lead a gathering, or association, because of the critical number of limitations on a circumstance (Flinsch-Rodriguez, 2019). Fiedler, in his Contingency Theory of Leadership (Fiedler, 1967), proposes that the viability of a gathering is reliant upon the authority styles of the pioneer and their favourability to everything going on. A large part of the hypothesis is laid out around the most un-favored associate scale (LPC). The LPC plans to measure a potential chiefs way to deal with an errand on a size of relationship propelled to task persuaded, where the pioneer fits on the scale permits what is going on to be reasoned, and consequently permits the ID of appropriate pioneers for assignments. The favourableness of the present circumstance relies upon three qualities: pioneer part relations, the help and trust the pioneer as from the gathering; task structure, the clearness of the assignment to the pioneer; and positional power, the power the pioneer needs to evaluate a gatherings execution and give prizes and disciplines (Fiedler, 1967). In the event that the pioneers approach matches what is expected from going on, achievement is anticipated for the gathering. Fiedler’s possibility model offers an extremely severe categorisation of initiative, obviously characterizing which circumstances endlessly won’t bring about progress for an expected pioneer. At the senior administration level of a hierarchal construction inside an association the hypothesis can be applied unreservedly, right off the bat because of the simplicity at which people can be supplanted in the event that their LPC score doesn’t match that expected of everything going on (Pettinger, 2007). Besides, and in particular, is to guarantee that the senior administration are ideally suited to effectively lead the association. Be that as it may, further down the progressive system Fielder’s possibility hypothesis starts to hold substantially less importance, it becomes unreasonable according to a hierarchical point of view because of the quantity of individuals at this degree of administration. The strategies of coordinating the pioneer with their most un-favored associate is difficult to reliably accomplish, so a more continuum based approach is required. Figure 1: Chelladurai’s Multi-Dimensional Model of Leadership (Miller and Cronin, 2012)

There are other possibility hypotheses that give a more continuum based approach like Redding’s hypothesis of administration and the board, but Fielder’s portrayal of how situational factors influence the authority style expected for everything going on is incredibly helpful in grasping the basics of initiative (Pettinger, 2007). Chelladurai in his Multi Dimensional Model of Leadership, develops a lot of Fiedler’s hypothesis yet in a continuum based approach, in which the pioneer can adjust their authority style to fit everything going on (Chelladurai and Madella, 2006). Chelladurai’s hypothesis is taken from sports brain science however can be applied to a hierarchical situation. It gives a considerably more exact categorisation of assignment structure, obviously separating a plenty of circumstances that require specific administration styles for progress. Chealld

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