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Mini Case: Shrieves Casting Company Mini Case

1567 Words7 Pages

Shrieves Casting Company Mini Case I will discuss how organizations analyze financial data to decide whether to add new product lines or test if projects are profitable. Organizations have to analyze several different calculations to ensure the information coincides with the decision to begin projects. Corporations employ consultants that have more knowledge in the industry and help to navigate the risk associated with the different opportunity costs. Management must understand the risk associated with each decision to ensure shareholders receive maximum returns, the corporation is able to function properly, and the departments continue operating in areas that align with the organization. Cash Flow Estimation and Risk Analysis The Shrieves Casting Company engaged with Sidney Johnson to analyze new lines of product mixes and to complete a capital budgeting analysis. Shrieves is considering using existing vacant facility space in the main plant; however, the company will incur additional expenses for the machine cost, shipping, and expenses required to install equipment. Shrieves estimates the new product line will generate an …show more content…

Like the NPV, organizations accept new projects when the incremental cash flow is positive, which represents an increase in cash flows, and rejects projects with a negative cash flow due to the loss of cash. The capital discount rate already includes the interest expense and dividends in the calculation; therefore, do not subtract the aforementioned expenses when calculating the project cash flow. The costs associated with the plant line site rehabilitation represent sunk costs, which the organization already incurred and cannot recover, thus the Sidney Johnson should not consider the expenses in the

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