Answered: Sarah later sent an email to Winston:…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter5: Activity-based Costing And Management

Section: Chapter Questions

Problem 64C: Consider the following conversation between Leonard Bryner, president and manager of a firm engaged...

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Hello, may you please help me with the following..

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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