Is considering purchasing a water park in charlotte, north carolinaâ, for $2,000,000. the new facility will generate annual net
cash inflows of $520,000 for ten years. engineers estimate that the facility will remain useful for ten years and have no residual value. the company usesâ straight-line depreciation. its owners want payback in less than five years and an arr of 12â% or more. management uses a 14â% hurdle rate on investments of this nature?
Given: <span>initial investment 2,000,000. the new facility will generate annual net cash inflows of $520,000 for ten years. engineers estimate that the facility will remain useful for ten years and have no residual value.
Payback period = Initial Investment / Cash Inflow per period Payback period = 2,000,000 / 520,000 Payback period = 3.85 years or 3 years and 10 months.
Accounting Rate of Return (ARR) = Average Annual Profit / Average Annual Investment Average annual profit = 520,000 Average annual investment = 2,000,000 / 10 years = 200,000 ARR = 520,000 / 200,000 = 2.60 or 260%
Explanation: In simple words, it refers to a situation when a manager knows that he or she is stuck in an unavoidable issue but rather than facing it he or she chooses the second best alternative that involves low risk.
In the given case, Dwight knew that substance abuse with an employee is a serious issue but rather than facing it on his won he decided to put it into his subordinate.
Thus, the given case is an example of relaxed change.
Economic Value Added is the residual wealth left for shareholders after having accounted for the financing needs of the company as shown by the formula below:
EVA=NOPAT-(WACC*invested capital)
NOPAT is the net operating profit after tax =operating profit(EBIT)*(1-tax rate)
In production management, there are some important aspects that must be done in order to truly produce a good quality product in the form of goods or services.
