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Report on Case
analysis of dales
Inc.
Contents
Introduction .................................................................................................................................................. 2
Discussion/ Analysis ...................................................................................................................................... 3
The Payback rule ....................................................................................................................................... 3
NPV............................................................................................................................................................ 4
IRR ................................................................................................................................................................. 5
Profitability Index ...................................................................................................................................... 6
Selection of Right tools for Dales .................................................................................................................. 6
Results ........................................................................................................................................................... 7
Option 1 .................................................................................................................................................... 7
Option 2 .................................................................................................................................................... 7
Financing Method ......................................................................................................................................... 8
Recommendations ........................................................................................................................................ 9
Conclusion ..................................................................................................................................................... 9
Appendix ..................................................................................................................................................... 10
Appendix -1 ............................................................................................................................................. 10
Appendix 2 .............................................................................................................................................. 11
References .................................................................................................................................................. 12
Introduction
Dale& Son” expanded rapidly during the 1970's but remained a family business. It was
restructured as a limited company in 1980 and subsequently experienced rapid growth until
2005. Now in the current scenario the then directors, headed by the Managing Director, Jim,
decided that the business had reached the limit of development in its present form. Future
development required large-scale expansion in order to compete with other food producers,
which in turn needed an injection of capital that the Dale family was unable to generate itself.
The conviction that there was much money to be made from “quality foods” had been vindicated
but the directors felt that it would be safer to look for other avenues for future development.
Hence, they are having two options and the best of it would be selected after doing various
analysis both qualitative and quantitative using various Capital Budgeting Techniques.
Discussion/ Analysis
Capital budgeting is the technique used to determine the long term worthiness of an investment
such as investments in machinery, replacement machinery, and infrastructure are worth pursuing
or not. The word investment refers to the expenditure which is required for the long term such as
in fixed assets. Hence, it is a process by which management selects fruitful management
proposal. Various tools are available to test capital budgeting. These tools provide a way to do
analysis whether to accept or reject the proposals....