Case 16-57 BlueRidgeSchool 1

12
Assignment CASE STudy 16-57 blue ridge school district jakarta – OCTOBER 7, 2011

Transcript of Case 16-57 BlueRidgeSchool 1

Page 1: Case 16-57 BlueRidgeSchool 1

AssignmentCASE STudy 16-57

blue ridge school district jakarta – OCTOBER 7, 2011

Page 2: Case 16-57 BlueRidgeSchool 1

Slide title minimum 32 pt

(32 pt makes 2 rows

Text and bullet level 1 minimum 24 pt

Bullets level 2-5minimum 20 pt

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 2

Case 16-57 BlueRidge School District Background INFO

Organization

Name

Key topics

Major Services

Blue Ridge School District

Student transportation

Board of education is considering the acquisition of several minibuses for student transportation to school.

Existing full sized bus (5 buses in total) is under utilized. It is considered not feasible to consolidate bus routes since the student living area is too large and bus ride to school would

exceed the limit of 45 minutes.

Page 3: Case 16-57 BlueRidgeSchool 1

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Text and bullet level 1 minimum 24 pt

Bullets level 2-5minimum 20 pt

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 3

Case 16-57 BlueRidge School District PROBLEM identification

Blue Ridge School District

The plan is to replace 5 full-sized buses with 8 minibuses; each minibus would cover much shorter route. Bus drivers are part-time employee with $18,000 annual compensation for each. This value is the same if minibus is acquired. Annual cost of operation and maintenance for a full-sized bus is $50,000. Annual cost of operation and maintenance for a mini bus is $20,000. Initial setup if minibus is acquired is $15,250.

Acquisition cost: Full-sized bus: $90,000 each; Minibus: $27,000 each if existing buses are sold, the price would be $15,000 each.

Currently Bus charter cost (for field-trips, out-of town event): $30,000 per year if existing bus are kept, the cost for field trips or out-of-town event can be reduced to $5,000 per year

Hurdle rate: 12%

Page 4: Case 16-57 BlueRidgeSchool 1

Slide title minimum 32 pt

(32 pt makes 2 rows

Text and bullet level 1 minimum 24 pt

Bullets level 2-5minimum 20 pt

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 4

Case 16-57 BlueRidge School District TASK

Required

1. Determine the 2 main alternatives for problem decision

2. Determine the 2 sub-options embedded in one of the main alternatives

3. Supposedly the school board decides to buy the minibuses, prepare NPV (Net Present Value) analysis for each of the 2 sub-options in question no.2 above

4. Prepare NPV analysis for the 2 main alternatives, should the minibuses be purchased?

5. Compute the IRR (Internal Rate of Return) on the proposed minibus acquisition

6. Identify which information is irrelevant to the problem decision

7. Michael Jeffries, business manager of Blue Ridge School was approached by his old-friend, Peter Reynold, who was the vice president of local automobile dealership. Reynolds offered a job in the dealership to Jeffries and asked him to recommend the acquisition of the minibuses. What should Michael Jeffries do?

Page 5: Case 16-57 BlueRidgeSchool 1

Slide title minimum 32 pt

(32 pt makes 2 rows

Text and bullet level 1 minimum 24 pt

Bullets level 2-5minimum 20 pt

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 5

Case 16-57 BlueRidge School District ANALYSIS

No. 1 and 2, Decision Tree

2a. Sell the 5 Fullsize Bus

2b. Keep the 5 Fullsize Bus

1. Keep using Fullsize Bus

2. Purchase new Minibus

Above figure shows the decision tree that needs to calculate both using NPV or IRR methods for each 2 options.

Page 6: Case 16-57 BlueRidgeSchool 1

Slide title minimum 32 pt

(32 pt makes 2 rows

Text and bullet level 1 minimum 24 pt

Bullets level 2-5minimum 20 pt

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 6

Case 16-57 BlueRidge School District ANALYSIS

3. NPV Analysis for the 2 sub-options

Based on the above calculation we can conclude that keeping the 5 Full-size Bus will be more favorable due to lower NPV costs $(18,023.88) compared with Selling the 5 Full-size Bus.

2a. Sell the 5 Fullsize Buses Y0 Y1 Y2 Y3 Y4 Y5 Total

Bus Selling price 75,000.00$

Bus charter cost per year - (30,000.00) (30,000.00) (30,000.00) (30,000.00) (30,000.00)

Total cash flow 75,000.00 (30,000.00) (30,000.00) (30,000.00) (30,000.00) (30,000.00)

x Discount factor 1.00 0.89 0.80 0.71 0.64 0.57

Present Value 75,000.00$ (26,785.71) (23,915.82) (21,353.41) (19,065.54) (17,022.81)

NPV (33,143.29)

Total Cost Approach

2b. Keep the 5 Fullsize Buses Y0 Y1 Y2 Y3 Y4 Y5 Total

Field trip cost per year - (5,000.00)$ (5,000.00) (5,000.00) (5,000.00) (5,000.00)

Total cash flow - (5,000.00) (5,000.00) (5,000.00) (5,000.00) (5,000.00)

x Discount factor 1.00 0.89 0.80 0.71 0.64 0.57

Present Value - (4,464.29)$ (3,985.97) (3,558.90) (3,177.59) (2,837.13)

NPV (18,023.88)

Page 7: Case 16-57 BlueRidgeSchool 1

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!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 7

Case 16-57 BlueRidge School District ANALYSIS

4. NPV Analysis for the 2 main alternatives

Based on the above calculation we can conclude that keep using Full-size bus is more favorable due to lower NPV costs $ (1,225,623.91) compared with purchasing new Minibus

NPVY0 Y1 Y2 Y3 Y4 Y5 @12%

1. Keep Using Fullsize BusDriver Annual compensation costs - (90,000) (90,000) (90,000) (90,000) (90,000) Annual Operation and maintainance costs - (250,000) (250,000) (250,000) (250,000) (250,000) Total Cash Flow - (340,000.00) (340,000.00) (340,000.00) (340,000.00) (340,000.00) x Discount factor 1.00 0.89 0.80 0.71 0.64 0.57

Present Value - (303,571.43) (271,045.92) (242,005.28) (216,076.15) (192,925.13)

NPV (1,225,623.91)$ NPV

Y0 Y1 Y2 Y3 Y4 Y5 @12%2. Purchase new MinibusAcquisition of minibuses (216,000)$ - - - - - Driver Annual compensation costs - (144,000) (144,000) (144,000) (144,000) (144,000)

Annual Operation and maintainance costs - (160,000) (160,000) (160,000) (160,000) (160,000)

Initial setup if minibus acquired (15,250) - - - - - Selling the 5 Fullsize Buses 75,000 - - - - -

Total Cash Flow (156,250)$ (304,000.00) (304,000.00) (304,000.00) (304,000.00) (304,000.00)

x Discount factor 1.00 0.89 0.80 0.71 0.64 0.57

Present Value (156,250)$ (271,428.57) (242,346.94) (216,381.20) (193,197.50) (172,497.76)

NPV (1,252,101.97)$

Difference in NPV 26,478.06$

Favors Keep using Fullsize Bus

Page 8: Case 16-57 BlueRidgeSchool 1

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!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™−≤≥fifl

ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 8

Case 16-57 BlueRidge School District ANALYSIS

5. Calculate the IRR

To compute the Internal Rate of Return (IRR), we will need to modify the Total-Cost Approach into Incremental-Cost Approach, which will only include the difference of

cost between two options, as shown in above calculation

Incremental Cost of Purchase New Minibus over Keep Using Fullsize Bus

Y0 Y1 Y2 Y3 Y4 Y5

2. Purchase new Minibus

Acquisition of minibuses (216,000.00)$ - - - - -

Driver Annual compensation costs - (54,000.00) (54,000.00) (54,000.00) (54,000.00) (54,000.00)

Annual Operation and maintainance costs - 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00

Initial setup if minibus acquired (15,250) - - - - -

Selling the 5 Fullsize Buses 75,000 - - - - -

Total Cash Flow (156,250.00)$ 36,000.00 36,000.00 36,000.00 36,000.00 36,000.00

x Discount factor 1.00 0.89 0.80 0.71 0.64 0.57

Present Value (156,250.00)$ 32,142.86 28,698.98 25,624.09 22,878.65 20,427.37

NPV (26,478.06)$

Y0 Y1 Y2 Y3 Y4 Y5Incremental Cost & Revenue (156,250.00)$ 36,000.00 36,000.00 36,000.00 36,000.00 36,000.00

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ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș

ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

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Case 16-57 BlueRidge School District ANALYSIS

5. cont..

Since the annual cash inflow is constant, we can calculate IRR using formula:

Annuity Discount Factor = Initial Cash Outflow / Annual Cash Inflow = $ (156,250.00) / (36,000.00) = 4.34

And the IRR value is obtained using PV Table below, so we will get 4.91%, since the resulting IRR is less than the school’s hurdle rate (12%), then the board should not proceed with acquisition of minibuses.

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ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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MMBatch_ | 2011-09-15 | Page 10

Case 16-57 BlueRidge School District ANALYSIS

6. Which one is irrelevant for decision making

The irrelevant information in this case is: Acquisition price of full-sized bus & Method of Depreciation since the decision is more related to cash problem.

7. Ethical Action or Not?

Assuming that the NPV analysis favors keeping the Full-size buses, Ethically, Michael Jeffries should not change the school board’s recommendation because of his long-time friend Reynold’s request. If Jeffries changed his recommendation, he would be acting in the best interest of himself, and not of the school.

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ΆΈΉΊΌΎΏΐΑΒΓΕΖΗΘΙΚΛΜΝΞΟΠΡΣΤΥΦΧΨΪΫΆΈΉΊΰαβγδεζηθικλνξορςΣΤΥΦΧΨΩΪΫΌΎΏ

ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲѲѴѴҐҐәǽẀẁẂẃẄẅỲỳ№

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Case 16-57 BlueRidge School District Conclusion

› Conclusion– From the case analysis above, we can conclude that in determining the

decision to investment proposal, both the Net Present Value (NPV) method and Internal Rate of Return (IRR) method are based on important assumptions. The NPV method is somewhat easier to apply; it also has the advantage of allowing the decision maker to adjust the discount rate upward for highly uncertain cash flows

Page 12: Case 16-57 BlueRidgeSchool 1

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