Question

Your company is upgrading the breakroom and kitchen. It is going to include an expresso machine, a fridge with compartments for each employee, a sink, microwave, toaster oven, tables chairs, a rock wall, snacks for everyone, and maybe some other bells and whistles. Your managers think that by updating this area employees will not take as long of lunches. They understand this purchase will be at a cost. You are tasked with considering two different options and presenting them to management. Use a 5% interest rate. First Cost Annual Maintenance Cost Salvage Value Life Years Walmart Kit $40,000 $10,000 $12,000 Target $65,000 $12,000 $25,000 a. Using NPW (Net Present Worth Analysis) analysis determine which kitchen kit you should choose. (8 points) b. Using EUAW (Equivalent Uniform Annual Worth) analysis determine which kitchen kit you should choose. (8 points) C. You really want the Target kit because it looks nicer and has more bells and whistles. You are willing to keep these products around for longer and therefore extend the lives of these products. Perform the analysis to show that the Target option is the better choice. (5 points) d. Now from your analysis in part b think about how ethical presenting this information to management would be. Write 2-3 sentences about how you would present this information in a way that showed your bias. You will be graded on your ability to consider two options in an ethical comparison and how you perceive your bias. (4 points)

Answer 1

1	NPW Analysis			2	EUAW Analysis
		Walmart Kit	Target			Walmart Kit	Target
	Intial Cost	40000	65000		Intial Cost	40000	65000
	AMC	10000	12000		AMC	10000	12000
	Salvage Value	12000	25000		Salvage Value	12000	25000
	Life	3	6		Life	3	6
	Total Cost				Total Cost
	Intial Cost	40000	65000		Intial Cost	40000	65000
(-)	Salvage	12000	25000		Salvage	12000	25000
	Balance	28000	40000		Balance	28000	40000
	5% Interst	6000	19500		5% Interst	6000	19500
	AMC @PV	2.71	5.05		AMC	30000	72000
	Amc	27100	60600
	Total Cost	61100	120100		Total	64000	131500
	In a Year	20,367	20,017		In a Year	21,333	21,917

In case of NPW analysis Selecting Target is the better and cheaper investment and EUAM analysis states Walmart kit is better option,

But as Target is the best and looks nicer it will be the good option because the cost difference is only around 600 $ and which will last for 6 Years and in walmart case we need to replace the furniture in 3 Years therefore Target product is the best option to advice to management for installation.