Brian Douglas Is The Corporate Financial Analyst Of Simpson And Selph, Ltd.

BA 2802 – Principles of Finance – Section 1
CASE REPORT
Executive Summary
Brian Douglas, who is the corporate financial analyst of Simpson and Selph, Ltd., was given responsibility of analyzing the situation of existing carpet-binding machine and evaluating the possible replacement of it with one of the two alternatives, Harley and Davidson, if it is necessary. He is currently facing three possible scenarios regarding the situation:
1. Continue with the current machine
2. Replace it with Harley
3. Replace it with Davidson
Among these three scenarios, he needs to choose the most beneficial one for the sake of company. Therefore, he should be considering the costs, revenues and profits associated with the investment and make the decision according

Therefore, Brian Douglas should replace the old machine with Davidson.
However, when Harley becomes less risky and Davidson becomes riskier than they initially were, Harley becomes more sensible scenario for the company since it brings more value than Davidson.
Harley Davidson
$603.037,58
$541.157,70
(see Exhibit xxx)
According to the Payback Period, IRR and Profitability Index calculations, Harley Davidson
Payback Period 1,41 Years 1,72 Years
IRR 61,42% 47,66%
Profitability Index 2,15 dollars 1,73 dollars
(see Exhibit xxx)
These calculations show that Harley is better in Payback Period and Profitability Index criterias. IRR doesn’t make much of a difference since these are mutually exclusive projects.
All in all, Brian Douglas should replace the old machine with Davidson because NPV is the best criteria and it is superior to other