Case Study: Guillermo Furniture Company
Capital Budget Recommendation
Kelly Garner
ACC/543
November 3, 2014
Mr. Thomas Frank
Capital Budget Recommendation
Guillermo Navallez is the owner of the Guillermo Furniture Company; a furniture manufacturing company located near Sonora, Mexico. He has been able to offer customers products at a premium price for years. However, recent economic and environmental factors have threatened the future success of the company. I have been hired as an accountant to make capital budget recommendations that would provide the greatest return for the company. The proposal will consider different capital budgeting evaluation techniques and will recommend a course of action. The net present value will support the proposal.
Background and Researched …show more content…
The present value method was used to compare the profitability of the options. The overhead cost for the high-tech option is $697,995. The net income before taxes is $218,202. The rate of return equaled 0.3126. The broker option has overhead costs in the amount of $613,044 and the net income before taxes resulting in $68,973. The rate of return equaled 0.1125. Guillermo is recommended to select the high technology investment solution because of its higher return rate. When conducting the analysis using the net present value technique, the calculations equaling zero or higher would be favorable. The results would deem the high-tech investment to be the most desirable. Such a transaction would yield an acceptable rate of return.
References
Edmonds, T. P., Edmonds, C. D., Olds, P. R., McNair, F.M., Tsay, B.-Y., Schneider, N. W., et al. (2007). Chapter 24: Planning for Capital Investment. In Fundamental Financial and Managerial Accounting Concepts (1st ed.). New York, NY: McGraw-Hill. Retrieved October 28, 2014 from The University of Phoenix eBook Collection database.
Varol, N., Costa-Font, J., and McGuire, A. (2012). Does Adoption of Pharmaceutical Innovation Respond to Changes in the Regulatory Environment? In Applied Economic Perspectives and Policy. Retrieved November 3,
Kelly Garner
ACC/543
November 3, 2014
Mr. Thomas Frank
Capital Budget Recommendation
Guillermo Navallez is the owner of the Guillermo Furniture Company; a furniture manufacturing company located near Sonora, Mexico. He has been able to offer customers products at a premium price for years. However, recent economic and environmental factors have threatened the future success of the company. I have been hired as an accountant to make capital budget recommendations that would provide the greatest return for the company. The proposal will consider different capital budgeting evaluation techniques and will recommend a course of action. The net present value will support the proposal.
Background and Researched …show more content…
The present value method was used to compare the profitability of the options. The overhead cost for the high-tech option is $697,995. The net income before taxes is $218,202. The rate of return equaled 0.3126. The broker option has overhead costs in the amount of $613,044 and the net income before taxes resulting in $68,973. The rate of return equaled 0.1125. Guillermo is recommended to select the high technology investment solution because of its higher return rate. When conducting the analysis using the net present value technique, the calculations equaling zero or higher would be favorable. The results would deem the high-tech investment to be the most desirable. Such a transaction would yield an acceptable rate of return.
References
Edmonds, T. P., Edmonds, C. D., Olds, P. R., McNair, F.M., Tsay, B.-Y., Schneider, N. W., et al. (2007). Chapter 24: Planning for Capital Investment. In Fundamental Financial and Managerial Accounting Concepts (1st ed.). New York, NY: McGraw-Hill. Retrieved October 28, 2014 from The University of Phoenix eBook Collection database.
Varol, N., Costa-Font, J., and McGuire, A. (2012). Does Adoption of Pharmaceutical Innovation Respond to Changes in the Regulatory Environment? In Applied Economic Perspectives and Policy. Retrieved November 3,