SOLUTION: ACC 556 SU Evaluating the Capital Investment Shoals Corporation Case Study

Attached. Please let me know if you have any questions or need revisions.1Planning Capital Calculations for Shoals CorporationStudent’s NameInstitutional AffiliationDate2Solution OneOld backhoes initial investment = $55,000New backhoes initial investment = New backhoes price – Old backhoes new salvage cost =$200,000- $42,000 = $ 158,000For the new backhoes, the initial investment is approximately 2.9 times the old backhoesinvestment. Hence, the initial capital is inherently cheaper on Overhaul than on ultimatepurchaseThe better option is consequently the OverhaulSolution TwoOld backhoes Net Present Value = $119, 841.49 and the New backhoes NPV = $ 94, 277.45The following are the formula and calculations for the NVP valuesYear t Present Value, PVt = Net Cash Flow/ (1 + Interest Rate) ^ TimeNPV = Total Present Value – Total Present ExpensesOld backhoes present cost – Overhaul costSolution ThreeThe results from above are as followsNet Present Value of Old backhoes is = $ 119,841.49Net Present Value of New backhoes is = $ 94,277.45Since the Net Present Value of Old backhoes is higher, it is a better option.Solution FourPayback period calculations for the Old backhoesCost of overhaul = $ 55,000Net annual cash flow = $ 30,425So, Payback period for old backhoes = $ 55,000 / $ 30,425 = 1.81 years3Below is the payback period for the new backhoes:Cost of purchase = $ 200,000 – $ 42,000 = $ 158,000Net annual cash flow = $ 43,900So, Payback period for new backhoes = $ 158,000 / $ 43,900 = 3.60 yearsPresent Value (PV) Calculations Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Yea…

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