JWI 530 Strayer University Profit and Supply Chain Improvement Project JWI 530: Financial Management IAssignment 2© Strayer University. All Rights Reserved

JWI 530 Strayer University Profit and Supply Chain Improvement Project JWI 530: Financial Management IAssignment 2© Strayer University. All Rights Reserved. This document contains Strayer University confidential and proprietary information and may not be copied, further distributed, or otherwise disclosed,in whole or in part, without the expressed written permission of Strayer University.This course guide is subject to change based on the needs of the class.530 –Assignment 2 (1198)Page 1of 6Assignment 2: Cost-Benefit AnalysisParts A and B Due Sunday, Midnight of Week 10(25% of Final Grade)OverviewIn this assignment, you will take on the role ofa senior member of the finance team assigned to lead the investment committee of a medium-sized telecommunications equipment manufacturer.Your team is evaluating a “make-versus-buy” decision that has the potentialtoimprove the company’s competitiveness,but which requires a significant capital investmentin new equipment. The assignment is organized into two parts:Part A: Data calculations based on the information in the scenarios Part B: Recommendations based on the calculationsOpportunity DetailsThe new equipment would allow your company to manufacture a critical component in-house instead of buying it from a supplier.Thiscapability would helpyou stabilize your supply chain (which has suffered from some irregularitiesand quality issuesin the past).It couldalsohave a positive impact on profitability through the absorption of fixed costssince this new machine will have plenty of excess capacity. There may even be a possibility that the company could leverage this capability to createa new external revenue stream by providing services to other companies.The company has been growing steadily over the past 5 years, and the financials and future prospects look good. Your CEOhas asked you to run the numbers. After doing some digging into the business, you have gathered information on the following:Theestimated purchase price for the equipment required to move the operation in-house would be $500,000.Additional net working capital to support production (in the form of cash used in Inventory, AR net of AP) would be needed in the amount of$25,000per yearstarting in year 0 and through all 5 years of the projectto support production.The current spending on this component (i.e.annual spend pool) is $875,000. The estimated cash flow savings of bringing the process in-house is 20% or annual savings of $175,000.This includesthe additional labor and overhead costs required.Your companyhas access to a credit line and could borrow the funds at a rate of 6%. Finally, the equipment required is anticipated to have a somewhat short useful life,as a new wave of technology is on the horizon. Therefore,it is anticipated that the equipment will be sold after five years for $25,000.(i.e.the terminal value).