ORGANIZATIONAL PERFORMANCE ANALYSIS AND RECOMMENDATIONS-PART 1

You have been hired by a midsize copper smelting company in northern Canada to act as a consultant and help the executive team determine its best course of action on a major decision. Due to some recent changes to the local environmental air quality laws, the company’s large coal-fueled smelting furnace is now operating out of compliance due to high levels of pollutants in the exhaust gases. The regulatory agency has given the company 12 months to demonstrate compliance, after which it will be fined $1,000 per day until the operations meet the regulation. The company has two alternatives. The first alternative is to install air scrubbers to reduce the output pollutant levels. The second alternative is to convert the smelting furnace from coal to natural gas. Both alternatives will meet the current regulatory requirements, but there is a slight concern that the air scrubber solution may not meet future regulatory restrictions. The executive team wants you to perform a financial performance analysis on both alternatives using several different capital budgeting methodologies. The team also is seeking guidance on nonfinancial considerations regarding the company’s ethical and social responsibilities related to this decision.

The product of your financial performance analysis will be a report for the executive team. In addition to the requirements that follow, be sure to incorporate references to appropriate academic sources, such as those found in this week’s Learning Resources or in the Walden Library.

RESOURCES

Be sure to review the Learning Resources before completing this activity.

Click the weekly resources link to access the resources.

WEEKLY RESOURCES (https://waldenu.instructure.com/courses/135683/modules/items/5223505)

To prepare for this Assignment:

• Download the Module 3 Assignment Template. Note: Be sure to keep a copy of your completed Assignment this week, as you will be adding to the same file for your Week 7 and Week 8 Assignments.

Your Instructor will provide part of the data to complete the calculations for this week’s Assignment. To access that information, refer to Doc Sharing (https://waldenu.instructure.com/courses/135683/modules/items/5223462).

BY DAY 7

Submit Part 1 of your report to the executive team, as well as the accompanying Excel file. Part 1 of your report should be approximately 2 pages in length (excluding title page and references) and should address the following:

PART 1: THE FINANCIAL PERFORMANCE ANALYSIS

For the first part of your report, you will provide an analysis of the financial performance of both alternatives using net present value (NPV), accounting rate of return (ARR), internal rate of return (IRR), and payback. (Note: ARR is also called Return on Investment, or ROI.) In Doc Sharing (https://waldenu.instructure.com/courses/135683/modules/items/5223462), your Instructor will provide you with financial information to use for this part of the Assignment.

To complete this part, address the following:

• Using the Week 6 Assignment Template and the data provided by your Instructor in the Doc Sharing (https://waldenu.instructure.com/courses/135683/modules/items/5223462) area, calculate the NPV, payback, IRR, and ARR.
  • Note: In addition to submitting your work in Excel, include your calculations within your report by copying and pasting the information from Excel. For information on inserting data from Excel into Word, refer to the following:
    • Microsoft. (n.d.). Insert a chart from an Excel spreadsheet into Word (https://support.microsoft.com/en-us/office/insert-a-chart-from-an-excel-spreadsheet-into-word-0b4d40a5-3544-4dcd-b28f-ba82a9b9f1e1). https://support.microsoft.com/en-us/office/insert-a-chart-from-an-excel-spreadsheet-into-word-0b4d40a5-3544-4dcd-b28f-ba82a9b9f1e1
• Analyze each of the alternatives based on your calculations and illustrate to the executive team which alternative should yield the highest return.

Refer to the Week 6 Assignment Rubric for specific grading elements and criteria. Your Instructor will use this grading rubric to assess your work.

Solution

Investment Analysis Report: Air Scrubbers vs. Furnace Fuel Change

Introduction

This report analyzes two investment alternatives—Air Scrubbers and Furnace Fuel Change—using the financial metrics of Net Present Value (NPV), Accounting Rate of Return (ARR), Internal Rate of Return (IRR), and Payback Period. I seek to provide information that will be used in making an informed decision about which option will provide the highest return on investment.

Key Financial Metrics

To evaluate the two alternatives, I used the following financial measures:

1. Net Present Value (NPV): This metric measures the difference between the present value of cash inflows and outflows. A higher NPV indicates a more profitable investment.
2. Accounting Rate of Return (ARR): Also known as Return on Investment (ROI), ARR measures the expected annual return as a percentage of the average investment.
3. Internal Rate of Return (IRR): IRR is the discount rate that makes the NPV of an investment equal to zero. A higher IRR means the investment is more likely to be profitable.
4. Payback Period: This metric calculates the time required to recover the initial investment. A shorter payback period is generally preferred.

Air Scrubbers
Net Present Value using the Annuity Table to determine PV of cash flow
NPV = Initial Cost + (Net Annual Cash Flow × Factor)	Amount	Factor	Present Value
Initial investment	(1,350,000)	1	(1,350,000)
PV of Annual net cash flow for 15 years	225,000	9.712249	2,185,256
Net present value			835,256

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