Mary Martell is a finance intern at a big corporation that was given the task to evaluate the profitability of a new, state of the art production line. She found that the project has a negative NPV. This is bad news for Sarah Pearl, who is the head of the manufacturing department and the proponent of the project. Mary delivered the news to her boss, Winston Rodriguez, who called Sarah and gave her the news: "Hello Sarah this is Winston from the finance department. The new inter confirmed what we all knew in the department: the net present value of your proposal is negative and therefore we need to reject the project. To be honest, we already had reached that conclusion but we wanted an outside opinion and gave Mary the task of evaluating the project. Sorry, but the project is a no." Sarah later sent an email to Winston: "Winston, please, don't kill my project." She then asked the following questions: "Why is the NPV so important? Why don't we use the average accounting rate of return instead for this project? Are there other profitability measures that we can use? If so, can you please describe them? Why don't we use one of them to justify the purchase of the new machine? And finally, how are all these profitability measures used across the globe?" Answer all of Sarah's questions in your initial post.
Mary Martell is a finance intern at a big corporation that was given the task to evaluate the profitability of a new, state of the art production line. She found that the project has a negative NPV. This is bad news for Sarah Pearl, who is the head of the manufacturing department and the proponent of the project. Mary delivered the news to her boss, Winston Rodriguez, who called Sarah and gave her the news: "Hello Sarah this is Winston from the finance department. The new inter confirmed what we all knew in the department: the net present value of your proposal is negative and therefore we need to reject the project. To be honest, we already had reached that conclusion but we wanted an outside opinion and gave Mary the task of evaluating the project. Sorry, but the project is a no." Sarah later sent an email to Winston: "Winston, please, don't kill my project." She then asked the following questions: "Why is the NPV so important? Why don't we use the average accounting rate of return instead for this project? Are there other profitability measures that we can use? If so, can you please describe them? Why don't we use one of them to justify the purchase of the new machine? And finally, how are all these profitability measures used across the globe?" Answer all of Sarah's questions in your initial post.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Mary Martell is a finance intern at a big corporation that
was given the task to evaluate the profitability of a new,
state of the art production line. She found that the
project has a negative NPV. This is bad news for Sarah
Pearl, who is the head of the manufacturing department
and the proponent of the project. Mary delivered the
news to her boss, Winston Rodriguez, who called Sarah
and gave her the news: "Hello Sarah this is Winston from
the finance department. The new inter confirmed what
we all knew in the department: the net present value of
your proposal is negative and therefore we need to
reject the project. To be honest, we already had reached
that conclusion but we wanted an outside opinion and
gave Mary the task of evaluating the project. Sorry, but
the project is a no."
Sarah later sent an email to Winston: "Winston, please,
don't kill my project." She then asked the following
questions: "Why is the NPV so important? Why don't we
use the average accounting rate of return instead for this
project? Are there other profitability measures that we
can use? If so, can you please describe them? Why don't
we use one of them to justify the purchase of the new
machine? And finally, how are all these profitability
measures used across the globe?"
Answer all of Sarah's questions in your initial post.
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