Mini Case - Capital Budgeting at Rio Negro, Inc.
Guidelines for Case Analysis
The following aids are permitted for this analysis: You may use internet sources, books, all posted materials (including Discussion Board Q&A), and your notes.
Any other aids are unauthorized and their use constitutes a violation of academic integrity. This includes face-to face or electronic correspondence concerning the specific details of the case with any other person that is not a member of your assigned group, whether or not they have current or past affiliation with Texas A&M Corpus Christi University.
The case is due on the date indicated on the course schedule. Late papers may be accepted with a reasonable excuse, but will be assessed a 20% grade reduction penalty. Cases should be typed in 12- point font, double-spaced, with a minimum of 1 inch margins.
The case report should be written according to the following format:
1. Introduction
2. Analysis
3. Conclusion
The introduction sets the stage for the work to follow and should consist of a short paragraph of the key problem(s) or issue(s) that your analysis addresses. The analysis will constitute the bulk of the written presentation and will be a direct response to the questions below. Use clear, concise, and complete sentences. Do not use bullet points or numbered paragraphs. The conclusion should be a short paragraph that summarizes the key points of the analysis.
Your report should not exceed five pages of double-spaced text with 1 inch margins at the sides, top, and bottom of the page. This does not include exhibits of your computations. You may submit one Excel Spreadsheet that contains all your exhibits, clearly labeled, and appropriately referenced in the text of your report.
Your analysis of "Rio Negro, Inc." should consist of answers to the questions below. Do not write the questions verbatim in your report. Instead, write a brief introductory statement that summarizes the question before you proceed with your analysis.
4. Calculate the present value of the proposed overhaul of the Maracas, with and without the new engine and control system. Should RNI do the basic overhaul or the expanded overhaul with the new engine and control system? For the moment, ignore the option to purchase a new vessel (you will evaluate that option in question 2 below).
Write a few paragraphs giving your answer and clearly explaining your reasoning and computations; show detailed computations in your Excel spreadsheet labeled Exhibit 1.
5. Calculate the present value of buying and operating the new vessel. What, if any, additional information would be useful to you in your analysis?
Write a few paragraphs giving your answer and clearly explaining your reasoning and computations; show detailed computations in your Excel spreadsheet labeled Exhibit 2.
6. Calculate the equivalent annual costs of (a) overhauling and operating the Maracas for 12 more years (with and without the new engine and control system) and (b) buying and operating the proposed replacement vessel for 20 years. You should use the real discount rate for this analysis. Based on your answer, what should RNI do?
Write one to two paragraphs giving your answer and clearly explaining your reasoning and computations; show detailed computations in your Excel spreadsheet labeled Exhibit 3.
7. Why is the equivalent annual cost method potentially useful in decision making in this case? Why would you use the real discount rate to compute the EAC? What problem(s) do you see with using the equivalent annual cost method to evaluate RNI's options?
One to two paragraphs.
Your report is intended for the senior management of Rio Negro, Inc., so be sure that you write in a professional style that is easy to follow.
Note - Please do Q5 only.
Attachment:- Case.rar