Financial Analysis
I. Problem Statement
Which plywood press should Mr. Parker choose: Dakota or Nakoi?
II. Case Review
The case is focused to Pete Parker, the CEO of Franklin Lumber who wants to expand the division production capability of Plywood Press leading to the hiring of Courtney Jones. Courtney Jones was hired in order to perform a financial evaluation on two new machines that he is considering and to critic the company’s capital budgeting policies. The top choices for the expansion of Plywood Press are Nakoi which cost $750,000 and Dakota worth $ 1,300,000 and Dakota has also three advantages against Nakoi: it is a bit faster its daily production rate is higher; labor costs will be lower since it is easier to operate and it is a more state-of-the-art press.
III. Alternatives
The project in the case in terms of relationship is mutually exclusive. Since, Parker and Jones cannot choose both Dakota and Nakoi because the purchase of the Plywood Press in both machines will maximize the cost of the company and there is a probability that it won’t be successful.
If they purchase Dakota, there is a chance that the press would last longer even if it is expensive. But if they purchase Nakoi, it is cheaper but it does not guarantee if it will last long.
IV. Key Decision Criteria
CRITERIA
DAKOTA
NAKOI
Improve profitability
Increase sales, market share or return on investment
Maintain customer satisfaction, corporate image
Be consistent with the corporate mission or strategy
Within our present (our future) resources and capabilities
Within acceptable risk parameters
Ease or speed of implementation
Employee morale, safety, or turnover
Retain flexibility and/or
Minimize environmental impact
V. Evaluation of Alternatives
NAKOI
DAKOTA
Advantages
Cheaper
Faster and production rate is higher
Easier to operate which can lead to lower labor cost
More state of the art press
Which plywood press should Mr. Parker choose: Dakota or Nakoi?
II. Case Review
The case is focused to Pete Parker, the CEO of Franklin Lumber who wants to expand the division production capability of Plywood Press leading to the hiring of Courtney Jones. Courtney Jones was hired in order to perform a financial evaluation on two new machines that he is considering and to critic the company’s capital budgeting policies. The top choices for the expansion of Plywood Press are Nakoi which cost $750,000 and Dakota worth $ 1,300,000 and Dakota has also three advantages against Nakoi: it is a bit faster its daily production rate is higher; labor costs will be lower since it is easier to operate and it is a more state-of-the-art press.
III. Alternatives
The project in the case in terms of relationship is mutually exclusive. Since, Parker and Jones cannot choose both Dakota and Nakoi because the purchase of the Plywood Press in both machines will maximize the cost of the company and there is a probability that it won’t be successful.
If they purchase Dakota, there is a chance that the press would last longer even if it is expensive. But if they purchase Nakoi, it is cheaper but it does not guarantee if it will last long.
IV. Key Decision Criteria
CRITERIA
DAKOTA
NAKOI
Improve profitability
Increase sales, market share or return on investment
Maintain customer satisfaction, corporate image
Be consistent with the corporate mission or strategy
Within our present (our future) resources and capabilities
Within acceptable risk parameters
Ease or speed of implementation
Employee morale, safety, or turnover
Retain flexibility and/or
Minimize environmental impact
V. Evaluation of Alternatives
NAKOI
DAKOTA
Advantages
Cheaper
Faster and production rate is higher
Easier to operate which can lead to lower labor cost
More state of the art press