Answer

Shrieves Casting Company – Capital Budgeting

The rehabilitation costs should be included in the analysis as it also has financial implications to the company (Belverd & Marian, 2013). The rehabilitations were done in view of the introduction of the new machine which was to provide another line of production. The nature of the rehabilitation is not described but in all aspects it should be included in the analysis. One instance of including it is the way it appears above. It has been treated as an expenses and it is deducted from the income of the company directly (Bushman, Lerman & Zhang, 2014). Its effect would be fully felt that way and its impact on the NPV calculation is much higher.

However if it’s included as part of the initial costs as its deduction is distributed using the MCRS its effect on the NPV would be minimal (Hermanson, Edwards & Invacevich, 2011). Its impact would reduce the NPV value to ($233,508) instead of ($290, 178) (Smieliauskas, 2012).

If there is an available plant space that can be leased to other firms then the amounts receivable should be included in the analysis. These amounts would not be included as sales but they will form part of the total revenues received (Walther, 2010). The $25,000 from the leased premises receivable per year has been included as part of Shrieves other income.

However after working out the total amounts receivable after taxation the amounts remaining are makes the project not viable given the negative Net Present value. Even after excluding the rehabilitation costs and including the receivables from the lease payments, the Net Present Value of the Project is still negative which means that it should not be recommended as the present value of the amounts that have been invested are not sustainable considering the earnings expected from the project in view of time value of the invested capital (Whittington, 2015). The taxation is very high and the provision for depreciation also has to be deducted making the project unviable. The time value of money makes the present value of the amounts to be invested in the project to be less profitable compared to the amounts that would be received after four years.