Essay About 1T And Point Of View

Financial Management
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Point of View:The case study will use the point of view of a financial management consultant. A consultant is someone who has expertise in a specific area and offers unbiased opinion and advice for a fee. Through independent and objective advisory services, consultants can recommend solutions that will improve the client’s use of its resources and help it achieve the objectives of the organization.Alternative Courses of Action:Ball – As Is, Equipment – Expand, Accessories – No ExpansionThe Expand alternative will be implemented because it has a higher net present value than the Price Increase alternative. Currently, Pinnacle can only produce 40,000 sets a year. However, annual demand is running at about 65,000 sets and management feels that it will continue to increase. Expansion of the equipment division will enable Pinnacle to keep up with the high demand for their clubs. Expansion of the accessories division would not be feasible due to the expansion of the equipment division. Both are major projects and top management believes that if more than one major project is implemented, none will be done right. Lastly, the As Is option will be implemented for the golf balls division.Equipment – Expand Cash outflows         11,600 PV of Incremental After-Tax Cash Inflows (14% discount rate)t+1           2,719 t+2           2,616 t+3           2,835 t+4           2,487 t+5           2,181 t+6           4,100 Total         16,938 Net Present Value           5,338 Ball – As Ist+1t+2t+3t+4t+5t+6Sales ($000s)         40,000       40,000      40,000      40,000      40,000      40,000 Cost of Goods Sold         24,000       24,000      24,000      24,000      24,000      24,000 Gross Profit         16,000       16,000      16,000      16,000      16,000      16,000 Marketing           1,600          1,600         1,600         1,600         1,600         1,600 Administrative           3,800          3,800         3,800         3,800         3,800         3,800 Miscellaneous           4,000          4,000         4,000         4,000         4,000         4,000 Total           9,400          9,400         9,400         9,400         9,400         9,400 Net Income Before Tax           6,600          6,600         6,600         6,600         6,600         6,600 40% Tax           2,640          2,640         2,640         2,640         2,640         2,640 After-Tax Cash Inflows           3,960          3,960         3,960         3,960         3,960         3,960 PV of  After-Tax Cash Inflows (11% discount rate)t+1           3,568 t+2           3,214 t+3           2,896 t+4           2,609 t+5           2,350 t+6           2,117 Total         16,754