Quality Metal Service Center Essay

Words: 988
Pages: 4

Case 7-3
Quality Metal Service Center
1. Is the capital investment proposal described in Exhibit 3 and attractive one for Quality Metal Service Center?
The project evaluation seems to be beneficial to the company:
A. Payback period: 4.5 years less than the company’s criterion of 10 years
B. Internal rate of return: 21.8%
c. Net present value (at 15% cost of capital): $286,000
The proposal seems to be an attractive one due to the fact that there seems to be a need in the district for this particular district to have the ability to perform some preproduction processing which is beneficial to local customers. The investment seems to be within company parameters and sounds attractive.
2. Should Ken Richards sent that proposal to
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This is the best way to calculate ROA because depreciation can distort the ROA. * Capitalized Lease value: Capitalized meaning that the company will possibly own the property in the future. This is fine for the ROA. * The rest of the assets seem to be in line.
The problems that arise is that as these assets rise no matter what category they are in, it will affect the ROA and may be a deterrent to the district manager to grow the organization. When the department heads have an idea such as adding the machine that will accomplish preproduction processing maybe the department head could also cc the Regional VP and then the district manager could make the decision but they could share it with the RVP and then the RVP can be confident that the DM is doing what is best for the organization. This may only have to happen is a district is slipping or not upgrading or developing any new ideas or practices.
5. While computing district profits for performance evaluation purposes, should there be a charge for income taxes? Should corporate overheads be allocated to districts? Should profits be computed on the basis of historical costs or on the basis of replacement costs? Evaluate these issues from the standpoint of their motivational impact on the district managers.
When corporate comes up with an incentive plan I feel the percentage should reflect the