Day

Introduction The net present value is a more accurate method than the payback period and the accounting rate of return when choosing between two mutually exclusive projects.Advertising We will write a custom case study sample on Day-Pro Investment Options specifically for you for only $16.05 $11/page Learn More The main weakness of the payback period and the accounting rate of return is that they do not consider the time value of money. The two methods may not be used to accurately account for the cost of capital. The net present value profile supports the NPV method with capturing a bigger picture using multiple discount rates. Payback approach The payback approach considers the length of time that it takes to recover the amount used as capital through cash flows (Kinney and Raiborn 654). When one project needs to be selected, the project that provides the shortest time to generate the amount used for the investment is preferred. In the payback period, longer time periods increase the uncertainty associated with the investment (Kinney and Raiborn 654). Uncertainty is a type of risk. The payback period for the Synthetic Resin project and the Epoxy Resin project are shown below. Table 1 Table 1: Synthetic Resin Payback Period Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flow ($1,000,000) $350,000 $400,000 $500,000 $650,000 $700,000 Cumulative total ($1,000,000) ($650,000) ($250,000) $250,000 $900,000 $1,600,000 Payback period 0 1 2 period ends = 250,000/ 500,000 = 0.5 of a year Table 2 Table 2: Epoxy Resin Payback Period Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flow ($800,000) $600,000 $400,000 $300,000 $200,000 $200,000 Cumulative cash flow ($800,000) ($200,000) $200,000 $500,000 $700,000 $900,000 Payback period 0 1 Period ends = 200,000/ 400,000 = 0.5 of a year The negative values are indicated in bracket, and the positive values are in the normal format. The payback perio d ends at the point where the cumulative cash flow becomes positive. The remaining amount is expressed as a percentage of the cash flow in the period that the cumulative cash flow becomes a positive value. It gives a value in the proportion of a year.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Table 1 indicates that the Synthetic Resin project has a payback period of 2 years and 6 months. Table 2 indicates that the Epoxy Resin project has 1 year and 6 months as its payback period. The Epoxy Resin project has a shorter payback period than the Synthetic Resin project, which makes the Epoxy Resin project more favourable. The Epoxy Resin project provides less risk by having its cash flows received earlier in the project life. It is one of the advantages of the payback period because it leads to a choice that reduces uncertainty. It may make the company choose the project that may incr ease liquidity during the early stages of operations. Liquidity refers to the cash needed to cover routine transactions in the short run. One of the limitations of the payback period is that it does not consider the stream of cash after the payback period. In the Synthetic Resin plan, the cash flows in Year 4 and Year 5 are ignored. The ignored period gives an additional amount of $2,500,000 for the Synthetic Resin project and $2,100,000 for the Epoxy Resin project. Another limitation of the payback period is that it does not consider the cost of capital, which is the opportunity cost of utilizing capital. The payback period ignores the time value of money. It makes a dollar received in the first year to have the same value as a dollar received in the final year. In everyday investment processes, money borrowed is paid with an interest. Money deposited in banks provides an interest. The capital invested in the projects could earn Day-Pro an interest by depositing it in a bank or pur chasing bonds. The long-term Treasury bonds are considered risk-free. The firm could generate profit without engaging in any business. The Epoxy and Synthetic investments have to provide a higher rate than that which can be acquired by purchasing a risk-free bond. If Day-Pro is borrowing money to invest in either of the projects, payback period cannot be used because it does not consider the cost of capital. Accounting Rate of Return (ARR) ARR is an approach that measures the annual rate of receiving net income. It gives the average income as a percentage of the initial investment (Mowen, Hansen and Heitger 606). ARR is calculated by adding the net income in the five years, and dividing by the number of years. The streams of net income and the ARR are shown below.Advertising We will write a custom case study sample on Day-Pro Investment Options specifically for you for only $16.05 $11/page Learn More ARR = average income/ initial investment (Mowen, Hans en and Heitger 606). Table 3 Synthetic Resin Average Rate of Return Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Average Income Net income $0 $150,000 $200,000 $300,000 $450,000 $500,000 $320,000 Investment ($1,000,000) ARR 32.00% Table 4 Epoxy Resin Average Rate of Return Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Average Income Net income $0 $440,000 $240,000 $140,000 $40,000 $40,000 $180,000 Investment ($800,000) ARR 22.50% The decision process requires the projects to have a minimum ARR of 40%. None of the two projects has met the minimum requirement. The firm should not invest in any of the two projects. The problem with the decision-making process is that the minimum rate of return has been set at a very high level that the two projects or others will be unlikely to meet. Very few projects have such a high rate of return on investment. The ARR indicates the average rate of return on the investment annually. The time v alue of money is not considered. Its weakness in failing to include the time value of money may divert capital from more profitable investments. The ARR is inaccurate in a business environment where projects are usually funded with borrowed capital. The ARR fails to capture the cost of capital. Mowen, Hansen and Heitger (606) discuss that ARR’s reliance on income is a weakness because net income can be manipulated by managers. The Net Present Value (NPV) Profile The NPV profile is a graph that displays how net present values are distributed for different levels of discount rates. Bierman (68) explains that the discount rates can stretch from zero to a reasonably large number of discount rates. In the calculations, the interest rates start from a discount rate of 0% to 45% (see Appendix 1 and Appendix 2).Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The NPV can be plotted with fewer points, but more points increase the accuracy of the trend line. Emphasis has been laid on the horizontal axis because it holds the internal rate of return (IRR). The IRR is found at the point where the NPV is equal to zero (Hansen, Mowen and Guan 719). The NPV is equal to zero on the horizontal axis for all values of discount rates. The NPV profile has been formed by finding the NPV at different discount rates before they are plotted. The table below and the graph are part of the NPV profile. Table 5 NPV Profile Discount rate Synthetic (NPV) Epoxy (NPV) 0% $1,600,000 $900,000 2% $1,433,277 $821,315 4% $1,281,831 $748,791 6% $1,143,938 $681,792 8% $1,018,103 $619,763 10% $903,021 $562,214 12% $797,553 $508,715 15% $655,227 $435,237 30% $149,614 $158,666 40% ($64,348) $31,231 45% ($148,112) ($21,106) Graph 1 The crossover point is at a rate of about 31%. The crossover point is the discount rate at which both projects prov ide the same net present value. The IRR is the rate at which the curves intersect with the horizontal axis (Bierman 68). The Synthetic Resin project has an IRR of approximately 37% and the Epoxy Resin project has approximately 43%. It becomes easier for Day-Pro to choose between the two projects depending on the side of the crossover point on which the discount rate falls. If the discount rate is less than 31%, then Synthetic Resin is more favourable because it provides a higher NPV. If the discount rate is higher than 31%, then Epoxy Resin provides a more favourable condition because it provides a higher NPV. However, the Synthetic Resin project provides a wider range of values at which it is better than the Epoxy Resin. Epoxy Resin is favorable at higher discount rates. Most businesses use discount rates that are around 10%, which may match the cost of capital. It makes Synthetic Resin project more favorable than the Epoxy Resin project to the firm. The main advantage of net prese nt value is its integration of the time value of money. Day-Pro may be able to consider using borrowed capital because the NPV will account for the returns that are used to cover the interest paid on borrowed funds, and returns to owners’ equity. Hansen, Mowen and Guan (719) explain that the NPV measures the additional value that the project generates for investors in the firm. It aligns itself with one of the objectives of the firm, which is to increase shareholders’ wealth. An NPV of zero indicates that the firm has met the cost of capital requirements (interest), and the cost of the investment (principal). The IRR does not indicate the value that is being added to shareholders’ wealth in absolute terms. Day-Pro cannot find out the amount of wealth that will be created using IRR because it uses relative terms (Hansen, Mowen and Guan 723). Another advantage of the NPV is that it considers all the cash flows during the operation of the business, which is differe nt from the payback period (Peterson-Drake 1). It considers the risk in investment by using lighter weights on amounts that are further into the future. The NPV corrects the weaknesses of the payback period and the ARR. One of the weaknesses of the NPV is that it does not provide an estimate of the annual rate of return. However, it is a weak limitation because the NPV considers capital in excess of the required rate of return. Another weakness of the NPV method is that the required rate of return can be selected subjectively (Peterson-Drake 1). The NPV profile reduces the weakness of subjectivity by providing a wider range of possible discount rates. Conclusion The NPV profile corrects the weakness of the NPV approach associated with the subjectivity of choosing the discount rate. The NPV accounts for the time value of money, which is usually applied in all sources of capital. The NPV indicates the value of wealth that is created by the project to the owners of equity. The NPV is a better method than either the payback period method or the ARR. Works Cited Bierman, Harold. An Introduction to Accounting and Managerial Finance a Merger of Equals. Hackensack, NJ: World Scientific, 2010. Print. Hansen, Don, Maryanne Mowen and Liming Guan. Cost Management: Accounting and Control. 6th ed. Mason, OH: South-Western Cengage Learning, 2009. Print. Kinney, Michael and Cecily Raiborn. Cost Accounting: Foundations and Evolutions. Mason, OH: Cengage Learning, 2010. Print. Mowen, Maryanne, Don Hansen and Dan Heitger. Cornerstones of Managerial Accounting. 3rd ed. Mason, OH: South-Western Cengage Learning, 2009. Print. Peterson-Drake, Pamela. n.d. Advantages and Disadvantages of Different Capital Budgeting Techniques. n.d. PDF file. 23 May. 2014. http://educ.jmu.edu/~drakepp/principles/module6/advdistable.pdf. Appendix Appendix 1 Discounting factors Year 2% 4% 6% 8% 10% 12% 15% 30% 40% 45% 0 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1 0.98039 0.96154 0.94340 0.92593 0.90909 0.89286 0.86957 0.76923 0.71429 0.68966 2 0.96117 0.92456 0.89000 0.85734 0.82645 0.79719 0.75614 0.59172 0.51020 0.47562 3 0.94232 0.88900 0.83962 0.79383 0.75131 0.71178 0.65752 0.45517 0.36443 0.32802 4 0.92385 0.85480 0.79209 0.73503 0.68301 0.63552 0.57175 0.35013 0.26031 0.22622 5 0.90573 0.82193 0.74726 0.68058 0.62092 0.56743 0.49718 0.26933 0.18593 0.15601 Appendix 2 Net Present Values Synthetic Resin Net Present Value Year Net cash flow PV 2% PV 4% PV 6% PV 8% PV 10% PV 12% 0 ($1,000,000) ($1,000,000) ($1,000,000) ($1,000,000) ($1,000,000) ($1,000,000) ($1,000,000) 1 $350,000 $343,137 $336,538 $330,189 $324,074 $318,182 $312,500 2 $400,000 $384,468 $369,822 $355,999 $342,936 $330,579 $318,878 3 $500,000 $471,161 $444,498 $419,810 $396,916 $375,657 $355,890 4 $650,000 $600,500 $555,623 $514,861 $477,769 $443,959 $413,087 5 $700,000 $634,012 $575,349 $523,081 $476,408 $434,645 $397,199 NPV $1,433 ,277 $1,281,831 $1,143,938 $1,018,103 $903,021 $797,553 Synthetic Resin Net Present Value  Ã‚   Year Net cash flow PV 15% PV 30% PV 40% PV 45% 0 ($1,000,000) (1,000,000) (1,000,000) (1,000,000) ($1,000,000) 1 $350,000 304,348 269,231 250,000 $241,379 2 $400,000 302,457 236,686 204,082 $190,250 3 $500,000 328,758 227,583 182,216 $164,008 4 $650,000 371,640 227,583 169,200 $147,042 5 $700,000 348,024 188,530 130,154 $109,209 NPV $655,227 $149,614 ($64,348) ($148,112) Epoxy Resin Net Present Value Year Net cash flow PV 2% PV 4% PV 6% PV 8% PV 10% PV 12% 0 ($800,000) (800,000) (800,000) (800,000) (800,000) (800,000) (800,000) 1 $600,000 588,235 576,923 566,038 555,556 545,455 535,714 2 $400,000 384,468 369,822 355,999 342,936 330,579 318,878 3 $300,000 282,697 266,699 251,886 238,150 225,394 213,534 4 $200,000 184,769 170,961 158,419 147,006 136,603 127,104 5 $200,000 181,146 164,385 149,452 136,117 124,184 113,485 NPV 821,315 748,791 681,792 619,763 562,214 508,715 Epoxy Resin Net Present Value Year Net cash flow PV 15% PV 30% PV 40% PV 45% 0 ($800,000) ($800,000) (800,000) (800,000) (800,000) 1 $600,000 $521,739 461,538 428,571 413,793 2 $400,000 $302,457 236,686 204,082 190,250 3 $300,000 $197,255 136,550 109,329 98,405 4 $200,000 $114,351 70,026 52,062 45,244 5 $200,000 $99,435 53,866 37,187 31,203 NPV 435,237 158,666 31,231 (21,106) This case study on Day-Pro Investment Options was written and submitted by user Ishaan T. to help you with your own studies. 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Emerging Issues interaction between people of different backgrounds and culture

Emerging Issues interaction between people of different backgrounds and culture Introduction In the present world where globalization and technology have taken center stage, a smooth interaction between people of different backgrounds and culture is very critical.Advertising We will write a custom essay sample on Emerging Issues: interaction between people of different backgrounds and culture specifically for you for only $16.05 $11/page Learn More Over the years, the question of multiculturalism has continued to receive recognition and many people are now seeking alternative ways to ensure that people can live and work together harmoniously. This paper examines the effects of cultural identity crisis and racism on the society. Cultural Identity Crisis and Its Impact on Society According to Hogan (2000), identity is best thought of as involving a representational or referential component and a procedural or skills component. Although the distinction is fairly standard in cognitive science, the terminologies vary greatly. The procedural component consists of a person’s unreflective knowledge about how to act or interact in diverse situations and includes knowledge about how to greet and address different people as well as how to take part in religious activities or work. The representational or referential component consists of a set of properties that define one’s self-understanding. Ordinarily, this set is organized in a hierarchical format considering that some properties are more central to a person’s self-definition than others. Sex, for instance, is regarded as being more central to an individual than his or her shoe size. Both sorts of identity are due to common social practices and not individual decisions. To a large extent, external contacts tend to radically disrupt indigenous culture. For many people, external contacts render traditional ideas uncertain and complicate the performance of traditional practices. In doing this, they make cultural identity a serious problem. While questi ons about an individual’s relation to his or her tradition may arise at any time, they take place with unique force and scope as external contacts intensify. This also happens as the degree of severance increases and internationalization of ideas and acts fade or shift between opposed cultures. In short, the conflicts tend to be so strong and persistent that they constitute a challenge to the individual’s cultural identity and by extension, his or her personal identity.Advertising Looking for essay on psychology? Let's see if we can help you! Get your first paper with 15% OFF Learn More Effects of Cultural Identity Crisis on Culturally Diverse Groups In general, cultural identity crisis affects how people interact with one another in different areas of their daily lives. Among others, it affects people’s eating habits, how they worship, where they choose to live or study, and how they socialize with others in the society. It is quite comm on to notice people making every attempt to change how they live in order to be accepted in a particular culture. Quite often, cultures that are regarded as superior to others tend to dominate and individuals from less popular cultures find themselves in a dilemma as they have to decide whether to retain or denounce their own cultural practices in favor of others. Racism and Its Impact on Society Race is viewed as a social construction primarily recognized by characteristics that are mainly of a physical nature. According to McNeil (2006), racism generally refers to the unfriendly treatment of one ethnic group by another. It is founded on ignorance and is mostly associated with a state of narrow mindedness. There are numerous negative repercussions when people are discriminated based on race. By and large, racial discrimination subjects people to unfair treatment and makes them to be regarded as second rate citizens. In places where racism thrives, people operate in clusters dependi ng on the kind jobs they do, where they live, and how they socialize. In some cases, people may be condemned to take on certain jobs in the society and not others. The negativity that accompanies racial discrimination eventually interferes with the way people interact. Effects of Racism on Culturally Diverse Groups According to Maher (2011), racism and racial discrimination adversely affect mental health by diminishing a victim’s self image and confidence. According to research, victims mainly complain of suffering personal pain and anguish and seeing their job prospects ruined by institutional racism. They also complain about being deliberately isolated at work, ignored, victimized, or sacked and experience feelings of self-loathing, self-destruction. Victims also get affected by inferiority complex. In addition, racism causes health problems such as physical illness that often result in long periods of sick leave due to stress, depression, and anxiety.Advertising We will write a custom essay sample on Emerging Issues: interaction between people of different backgrounds and culture specifically for you for only $16.05 $11/page Learn More Manifestations of racism at the workplace include being refused references, leaving jobs due to undue pressure, denial of information about promotion opportunities, unclear procedures, unfair monitoring, being denied or consistently overlooked for promotion despite the fact that one may be well qualified, downgrading, and feeling that one has to suffer in silence or risk being isolated. Conclusion Beyond doubt, the effects of globalization will continue throughout the world. As a result, it is necessary to do everything possible in order to address the challenges that are presented by cultural identity crisis as well as racism and ethnic prejudice. This may be done by creating an environment that promotes both multiculturalism and multiplicity. Even though dealing with these issues may pose so me difficulty, a focused intervention is necessary. References Hogan, P. C. (2000). Colonialism and Cultural Identity: Crises of Tradition in the Anglophone Literatures of India, Africa, and the Caribbean. Albany, NY: State University of New York Press. Maher, M. J. (2011). Racism and Cultural Diversity: Cultivating Racial Harmony through Counseling, Group Analysis, and Psychotherapy. London, UK: Karnac Books Ltd. McNeil, D. E. (2006). Institutional Racism and Its Impact on Lives and Learning of African American Students. Ann Arbor, MI: ProQuest.