Competency
Critique organizational investments using forecasting scenarios.
Scenario
You are a production manager for Gold Corporation, a manufacturing company that 
manufactures bottles of liquid soap. The equipment you are using is over 20 years old, having 
been purchased when liquid soap first entered the retail market. While the equipment still works, 
you incur $100,000 annually in maintenance expenses because the equipment is old. You 
presently produce 1 million cases of liquid soap per year. This soap sells for $3 per case. Given 
the age of the equipment, you anticipate a decline in production of 50,000 cases in each of the 
next five years because of breakdowns in the equipment. You have been researching new 
production equipment and have found a new machine that will reduce annual operating costs to 
$48,000 per year and allow an increase in production over the 1 million cases presently being 
sold by sales and marketing. In conversations with sales and marketing, management believes 
that they can increase sales by 1% per year for the next five years. The new machine will have a 
fully loaded cost of $370,000, and an expected useful life of 5 years with no salvage value. The 
old machine can be sold today as scrap for $5,000.
Instructions
Prepare a 6-10 slide PowerPoint presentation for management to demonstrate the following:
? Develop a schedule of projected cash flows using current equipment including the 
reduction in future sales.
? Develop a schedule of projected cash flows using discounted cash flows for the proposed 
new equipment.
? Analyze the projected cash flows and evaluate the feasibility of the proposed capital 
investment.
? Make a recommendation on the course of action management of Gold Corporation should
take regarding the capital equipment used in this manufacturing process.
not specified