One of Your Managers Has Requested the Purchase of a New

question 16

Essay

One of your managers has requested the purchase of a new capital asset and as part of your analysis you are calculating the present value of the project’s cash flow. Your manager has argued that your analysis is flawed. You believe the manager is trying to manipulate the analysis. You have determined the amount and timing of the project’s cash flow.

Required:

a. Discuss how a manager can increase the project’s present value without substantially altering it.

b. How can a company prevent managers from using such a method to their benefit?

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Definitions:

Discriminant Validity

The degree to which a concept or measurement is genuinely distinct from other concepts or measurements within the same model or study.

Researcher

A person who conducts systematic investigations into and study of materials and sources in order to establish facts and reach new conclusions.

Mode

The value that appears most frequently in a given set of data, commonly used in statistics to describe central tendency.

Median

The middle value in a set of data when arranged in ascending or descending order, or the average of the two middle values if the set has an even number of values.