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Case
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Reference no. NAC1809
Authors: Steven Dawson
Published by: NACRA - North American Case Research Association
Published in: 1998
Length: 12 pages
Data source: Field research

Abstract

The controller has prepared a capital budgeting analysis for a project to treat petroleum-contaminated soil. His analysis uses the return to equity approach and headquarters responds, telling him to calculate the more traditional return to total capital invested. The controller, and the student, must understand the differences between the two methods of analysis, make any necessary revisions, revise the return to equity calculation, decide whether one or the other is better in this situation, and defend the choice. Recent strategy sessions at Arizona Hawaii have identified the search for new income sources as a high priority. The controller is concerned that the expected returns will be lower when calculated using total capital and that the project may lose out to projects proposed by other divisions.

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Abstract

The controller has prepared a capital budgeting analysis for a project to treat petroleum-contaminated soil. His analysis uses the return to equity approach and headquarters responds, telling him to calculate the more traditional return to total capital invested. The controller, and the student, must understand the differences between the two methods of analysis, make any necessary revisions, revise the return to equity calculation, decide whether one or the other is better in this situation, and defend the choice. Recent strategy sessions at Arizona Hawaii have identified the search for new income sources as a high priority. The controller is concerned that the expected returns will be lower when calculated using total capital and that the project may lose out to projects proposed by other divisions.

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