1. The Theta company manufactures silicon boards that are used in preparing small, medium and large size electronic circuits. The company is considering to reduce its cost by automating some of its manufacturing tasks. This automation requires the installation of a new equipment. The relevant information for net present value (NPV) analysis of investment in new equipment is given below:
i. Cost of equipment: $72,000
ii. Expected annual cost savings to be provided by new equipment: $40,000
iii. Useful life of the equipment: 6 years
iv. Salvage value at the end of 6 years: $0
v. Discount rate: 12%
Should the new equipment be purchased?
Essay Questions
Each answer should be no more than 500 words. You will be graded on correctness as well as the clarity of your answer.
1. In the context of negotiations, what is leverage? What role does it play in achieving negotiated agreements? Does leverage exist objectively or is it merely a perception or “mindset?”
2. Choose three financial ratios. For each, give its definition, explain what it reveals, why it might be useful and at least one business situation in which it might be used.
3. Explain the difference between risk and exposure, in a business context. Then, discuss the ways in which one’s relationship to risk influences decisions. In managing risk, are there any common mistakes one should try to avoid? Are there common mistakes one can guard against in decision making?
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