Evaluating capital-expenditure, Business Management

Evaluating Capital-Expenditure Proposals at Biotechnique Chemicals

In submitting a project for senior-management approval, the proposers had to identify it as belonging to one of four possible categories: (1) new product or market, (2) product or market extension, (3) engineering efficiency, or (4) safety or environment. The first three categories of proposals were subject to a system of four performance "hurdles", of which at least three had to be met for the proposal to be considered. The Glenlines project would be in the engineering efficiency category. The performance hurdles are:

1. Impact on earnings per share. For engineering-efficiency projects, the contribution to net income from contemplated projects had to be positive. This criterion was calculated as the average annual EPS contribution of the project over its entire economic life, using the number of outstanding shares at the most recent financial year-end used as the basis for the calculation. (At financial year end 1991, Biotechnique Chemicals had 92,891,240 shares outstanding.)

2. Payback. This criterion was defined as the number of years necessary for free cash flow of the project to amortize the initial project outlay completely. For engineering-efficiency projects, the maximum payback period was six years.

3. Discounted cash flow. DCF was defined as the present value of future cash flows of the project (at the discount rate of 13 percent for engineering-efficiency proposals), less the present value of the initial investment outlay. This net present value of free cash flows had to be positive.

4. Internal rate of return. IRR was defined as being that discount rate at which the present value of future free cash flows just equaled the initial outlay (in other words, the rate at which the NPV was 0). The IRR of engineering-efficiency projects had to be greater than 13 percent.

Posted Date: 2/16/2013 6:06:22 AM | Location : United States







Related Discussions:- Evaluating capital-expenditure, Assignment Help, Ask Question on Evaluating capital-expenditure, Get Answer, Expert's Help, Evaluating capital-expenditure Discussions

Write discussion on Evaluating capital-expenditure
Your posts are moderated
Related Questions
The assignment has been designed to marry the theoretical analysis and practical application of the concepts of 'Managing Operations'. This assignment will therefore require studen

QUESTION The advent of the internet in the 1960s and the World Wide Web in the 1990s has revolutionised global communications. (a) Differentiate between the Internet as well

Explain the business leader's primary business or businesses, highlighting how the leader got started and examine the leader's three (3) main business challenges in establishing an

Write individual reflections after observing three hours of instruction and analyzing three instructional tools (assessments or project assignments).  Requirements: For ea

What are the objectives of work study for any management? The objectives of work study for any management are as follows: 1. Enhanced working processes as well as standard p

service marketing in information technology?

Start a new workbook and develop a spreadsheet solution for Gareth's Gardens in order for him to efficiently record his garden orders and produce his customer invoices. The soluti

QUESTION (a) In the banker-customer contractual relationship, each party has some rights and duties. Describe the rights and duties of both the banker and the customer, quoting

1. Discuss what types of organisations these are and how this might affect the types of accounts they produce and who might use them and how. 2. Compare the business environment f

Explain the reasons why a department of an organisation might continue to use manual records rather than a new, recently installed and fully operational computer system. Severa