ORGANIZATIONAL PERFORMANCE ANALYSIS AND RECOMMENDATIONS—PART 2
For this Assignment, you will continue in your role as consultant to the executive team of a midsize copper smelting company in northern Canada. As a reminder, here is a summary of the teamÂ’s current situation and need:Due to some recent changes to the local environmental air quality laws, the companyÂ’s large coal-fueled smelting furnace is now operating out of compliance due to high levels of pollutants in the exhaust gases. The regulatory agency has given the company 12 months to demonstrate compliance, after which it will be fined $1,000 per day until the operations meet the regulation. The company has two alternatives. The first alternative is to install air scrubbers to reduce the output pollutant levels. The second alternative is to convert the smelting furnace from coal to natural gas. Both alternatives will meet the current regulatory requirements, but there is a slight concern that the air scrubber solution may not meet future regulatory restrictions. The executive team wants you to perform a financial performance analysis on both alternatives using several different capital budgeting methodologies. The team also is seeking guidance on nonfinancial considerations regarding the companyÂ’s ethical and social responsibilities related to this decision.
Last week, for Part 1 of your report, you conducted a financial performance analysis on both alternatives using several different capital budgeting methodologies. This week, in Part 2 of the report, you will provide company leadership with guidance related to the companyÂ’s ethical responsibilities related to this decision.
As a reminder, you will continue adding on to the report you began developing last week. In addition to the requirements that follow, be sure to incorporate references to appropriate academic sources, such as those found in this weekÂ’s Learning Resources or those in the Walden Library.
RESOURCES
Be sure to review the Learning Resources before completing this activity.
Click the weekly resources link to access the resources.Â
WEEKLY RESOURCES
To prepare for this Assignment:
Return to the Module 3 Assignment Template you utilized in Week 6. With the research and readings from Week 6 and Week 7 in mind, incorporate any feedback, as needed, into your report as you complete Part 2.
BY DAY 7
Submit Part 2 of your report to the executive team. Part 2 of your report should be approximately 3–4 pages in length (excluding title page and references) and should address the following:
PART 2: ETHICAL RESPONSIBILITY
During several visits to the plant, you have overheard some employees and mid-level supervisors discussing the issues related to the smelting furnace and some potential “solutions” to the current regulatory problem. Some of these conversations are troubling because they are suggesting covering up the issue through false or misleading data reporting. Based on these conversations, you feel obligated to discuss the issue of ethical responsibility with the executive team. Be sure to address the following:
Examine the importance of ethics in managerial accounting.
Analyze how ethics, both good and bad, can affect the organization as a whole. Consider not only the financial impact but also the direct and indirect impact on stakeholders, such as employees, customers, suppliers, etc.
Propose at least two recommendations that the company could implement to help ensure high ethical responsibility at all levels of the organization.
Module 3 Assignment:
Organizational Performance Analysis and Recommendations
Prepared by: Replace this text with your name.
Date: Replace this text with the submission date.
Walden University
WMBA 6050: Accounting for Management Decisions
Page 1 of 6
Executive Summary
Replace this text with your executive summary.
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Part 1: The Financial Performance Analysis
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
Insert your calculations of the NPV, payback, IRR, and ARR from Excel. Add or remove
headings as necessary.
For information on inserting data from Excel into Word, refer to the following:
Microsoft. (n.d.). Insert a chart from an Excel spreadsheet into Word.
https://support.microsoft.com/en-us/office/insert-a-chart-from-an-excel-spreadsheetinto-word-0b4d40a5-3544-4dcd-b28f-ba82a9b9f1e1
[Sub-Heading]
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Part 2: Ethical Responsibility
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
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[Sub-Heading]
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Part 3: The Triple Bottom Line and Positive Social Change
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
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[Sub-Heading]
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References
[Please delete this note before submitting your Assignment. For more information about
formatting your reference list, please visit the following site:
https://academicguides.waldenu.edu/writingcenter/apa/references.]
Include appropriately formatted references to support your Assignment. Refer to the
Assignment guidelines for further information on the requirements.
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Instructions:
Your Instructor will provide the numerical data of the required investment, annual cash flows, annual net income, average
payback, IRR, and ARR by filling in the highlighted cells. Additionally, use the IRR Worksheet to calculate the IRR using the
Air Scrubbers
Net Present Value using the Annuity Table to determine PV of cash flow
NPV = Initial Cost + (Net Annual Cash Flow × Factor)
Amount
Initial investment
PV of Annual net cash flow for 15 years
Net present value
OR
Net Present Value Using Excel to determine PV cash flow
Factor
1
Present Value
$
$
–
Present Value
NPV = Initial Cost + PV of Cash Flow
Initial investment
PV of Annual net cash flow for 15 years
Net present value
=PV(rate,value1,[value2])
Payback Period = Initial Investment / Net Annual Cash Flow
Internal Rate of Return
Using Annuity Table
OR
Using Excel =IRR(M6:M21) use the IRR worksheet
Average Rate of Return = Ave Net Income / Ave Book Value of investment
$
–
ual net income, average book value, and cost of capital to students. Use that information to calculate the NPV,
culate the IRR using the Excel =IRR formula.
Furnace Fuel Change
Net Present Value using the Annuity Table to determine PV of cash flow
NPV = Initial Cost + (Net Annual Cash Flow × Factor)
Amount
Initial investment
PV of Annual net cash flow for 15 years
Net present value
OR
Net Present Value Using Excel to determine PV cash flow
Factor
1
Present Value
$
$
–
Present Value
NPV = Initial Cost + PV of Cash Flow
Initial investment
PV of Annual net cash flow for 15 years
Net present value
=PV(rate,value1,[value2])
Payback Period = Initial Investment / Net Annual Cash Flow
Internal Rate of Return
Using Annuity Table
OR
Using Excel =IRR(M26:M41) use the IRR worksheet
Average Rate of Return = Ave Net Income / Ave Book Value of investment
$
–
Air Scrubbers
IRR Worksheet
Period
Cash Flow
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Furnance Fuel Change
IRR Worksheet
Period
Cash Flow
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Module 3 Assignment:
Organizational Performance Analysis and Recommendations
Prepared by: Annet Castillo
Date: 02/18/2024
Walden University
WMBA 6050: Accounting for Management Decisions
Page 1 of 6
Part 1: The Financial Performance Analysis
Air Scrubbers
Net Present Value Using Excel to determine PV cash flow
NPV = Initial Cost + PV of Cash Flow
Initial investment
PV of Annual net cash flow for 15 years
Net present value
PV(rate,value1,[Value 2])
Present Value
$
(1,350,000)
2,185,256
$
835,256
Payback Period = Initial Investment / Net Annual Cash Flow
6.00
Internal Rate of Return
Using Excel =IRR(M6:M21) use the IRR worksheet
14%
Average Rate of Return = Ave Net Income / Ave Book Value of investment
20.00%
Furnace Fuel Change
Net Present Value Using Excel to determine PV cash flow
NPV = Initial Cost + PV of Cash Flow
Initial investment
PV of Annual net cash flow for 15 years
Net present value
=PV(rate,value1,[value2])
Present Value
$
(1,385,000)
3,059,358
$
1,674,358
Payback Period = Initial Investment / Net Annual Cash Flow
4.40
Internal Rate of Return
Using Excel =IRR(M26:M41) use the IRR worksheet
21%
Average Rate of Return = Ave Net Income / Ave Book Value of investment
21.68%
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Period
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Air Scrubbers
IRR Worksheet
Cash Flow
$
(1,350,000)
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
Furnance Fuel Change
IRR Worksheet
Period
Cash Flow
0 $
(1,385,000)
1
315000
2
315000
3
315000
4
315000
5
315000
6
315000
7
315000
8
315000
9
315000
10
315000
11
315000
12
315000
13
315000
14
315000
15
315000
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Financial Metrics analysis
In assessing investment alternatives, such as Air Scrubbers and Furnace Fuel Change,
financial analysis plays a critical role in determining the potential return on investment.
Analyzing metrics such as Net Present Value (NPV), Accounting Rate of Return (ARR), Internal
Rate of Return (IRR), and Payback Period empowers executives to make well-informed
decisions regarding investment options and their potential returns. NPV, a fundamental metric,
determines the current value of future cash inflows, considering the concept of the time value of
money. It provides insight into the project’s profitability and its ability to generate value over
time. Both projects exhibit positive NPVs, implying potential profitability. Air Scrubbers show
an NPV of $835,256, while Furnace Fuel Change demonstrates a higher NPV of $1,674,358 over
the 15-year project duration. This indicates that both projects are expected to generate positive
returns, but Furnace Fuel Change appears more financially attractive with its significantly higher
NPV.
Accounting Rate of Return (ARR), provides insights into the average rate of return
relative to the initial investment. Air Scrubbers yield an ARR of 20.00%, while Furnace Fuel
Change boasts a superior ARR of 21.68%. This suggests that Furnace Fuel Change generates
higher average profits compared to Air Scrubbers, enhancing its financial appeal. Internal Rate
of Return (IRR) is another crucial metric, representing the percentage return on investment,
assuming reinvestment of cash flows at the same rate. Air Scrubbers show a respectable IRR of
14%, indicating a moderate return on investment. However, Furnace Fuel Change outperforms
with a higher IRR of 21%, suggesting a more lucrative investment opportunity with greater
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potential for returns. As Magni (2010) indicates, a higher IRR indicates that Furnace Fuel
Change offers a more lucrative return on investment, making it a more enticing option for
potential investors. The Payback Period provides insight into the time required to recover the
initial investment (Boardman et al., 2006). Air Scrubbers requires 6 years to recover the initial
investment, indicating a relatively longer timeframe for payback. In contrast, Furnace Fuel
Change achieves this milestone in a swifter timeframe of 4.40 years, demonstrating a more
efficient use of capital and quicker return on investment. Thus, this is an indication that Furnace
Fuel Change would recoup the initial investment at a faster rate, contributing to its appeal in
terms of liquidity and risk mitigation.
Recommendations to the Executive Team
Upon comprehensive analysis of NPV, ARR, IRR, and Payback Period, Furnace Fuel
Change emerges as the more favorable investment option. Furnace Fuel Change exhibits superior
financial performance across multiple metrics presenting a more compelling investment
opportunity. Its higher NPV, ARR, IRR, and shorter payback period collectively underscore its
stronger financial performance compared to Air Scrubbers. However, it is imperative to take into
account additional factors including environmental ramifications, operational viability,
adherence to regulations, and fluctuations in the market landscape when making informed
decisions. These aspects contribute significantly to the overall assessment of investment
alternatives. Additionally, Aven (2016) asserts that conducting sensitivity analyses to assess
various scenarios and risk factors can provide additional insights into the resilience and
robustness of each investment option. By carefully weighing these factors and conducting a
thorough evaluation, stakeholders can make well-informed decisions aligned with their strategic
objectives and risk tolerance levels.
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References
Aven, T. (2016). Risk assessment and risk management: Review of recent advances on their
foundation. European Journal of Operational Research, 253(1), 1–13.
https://doi.org/10.1016/j.ejor.2015.12.023
Boardman, C. M., Reinhart, W. J., & Celec, S. E. (2006). The role of the payback period in the
theory and application of duration to capital budgeting. Journal of Business Finance
& Accounting, 9(4), 511–522. https://doi.org/10.1111/j.1468-5957.1982.tb01012.x
Magni, C. A. (2010). Average internal rate of return and investment decisions: A new
perspective. The Engineering Economist, 55(2), 150–180.
https://doi.org/10.1080/00137911003791856
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