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Large project investments

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Though much of your efforts will be in the routine accounting of the factories' operations, you will also be involved with departments where large capital expenditures are made. In the past, the firm has not seen the expected returns from a new investment, in terms of actual savings achieved. Given the size of some coming large investments, on how they can do a better job of making sure a project's expected costs and savings are in fact achieved.

The difference between routine expenses and those incurred by major projects.
What expected return refers to, as compared to profitability.
The typical basis for cost justifying a large investment proposal, including a simple example.
The assumptions inherent in your example of a large cost savings project proposal.
Given the assumptions, an explanation of how managers or engineers could monitor the project to see if it will in fact be achieving the expected return.

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Step 1
The large upcoming projects can do a better job of making sure that the expected costs and savings are achieved. The expected costs and savings will be achieved if the new project fits in properly with the existing business strategy. Clear articulation of the problem and objectives will help achieve cost and savings. Next, the project must focus on the right things. For example, the project helps improve quality. Next, it is essential that the employees are with the project. If they agree with it and support it, a situation will be created where they will be fully involved in the project. The business must be involved with the project and should know how the project will support the business.

Step 2
There is an important difference between routine expenses and those incurred by ...

Solution Summary

This solution explains investment in large projects. The sources used are also included in the solution.

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1) Lease or Buy. Your company wants to purchase a new network file server for its wide-area computer network. The server costs $75,000. It will be completely obsolete in three years. Your options are to borrow the money at 10 percent or to lease the machine. If you lease, the payments will be $27,000 per year, payable at the end of each of the next three years. If you buy the server, you can depreciate it straight-line to zero over three years. The tax is 34 percent. Should you lease or buy?

2) Financing and Capital Structure: Construct a project analysis under conditions of uncertainty; construct a lease vs buy analysis. Prepare an EBIT/EPS analysis.

3) Examine how firms raise capital and the roles of intermediaries.

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