Question 1· (Part 1)· Using a 4.5 discount rate, calculat.docx

Question 1
· (Part 1)
· Using a 4.5% discount rate, calculate the Net Present
Value, Payback, Profitability Index, and IRR for each of the
investment projects below (note, the inflows are for each year).
Based on your calculations rank the projects and support you
answer.
·
· Project 1
· Initial Invest= $490,000, Cash inflows of $100,000
for years 1-5 and $50,000 for years 6-10.
·
· Project 2
for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
·
· Project 3
for years 1-5, $0 for years 6-9 and $100,000 for year 10.
·
· (Part 2)
· Assuming a budget of $1,100,000 what are your
recommendations for the three projects in the above problem.
Explain.
·
Assuming a budget of $2,200,000 what are your
recommendations for the above problem? Explain.
BBA 3301, Financial Management 1

UNIT VII STUDY GUIDE
Capital Budgeting
Learning Objectives
Upon completion of this unit, students should be able to:
1. Contrast mutually exclusive project decisions and stand-alone
project
decisions.
2. Calculate payback periods.
3. Calculate net present value (NPV) for various investment
projects.
4. Calculate internal rate of return (IRR) using Excel.
5. Calculate the profitability index (PI) to compare capital
projects.
6. Contrast results from various capital budgeting techniques by
assessing
the strengths and weaknesses.
Written Lecture
This unit combines tools from time value of money and applies
them to the most
important element of management, long-term planning. The
managerial function
is concerned with the allocation of resources and the
deployment of capital
(money) to long-term projects and is pivotal to the life of a

business.
Capital budgeting involves the planning of large expenditures
on long-term
(capital) projects. Ranked in order of increasing risk, common
categories of
capital budgeting include replacement, expansion, or new
products/ventures.
Capital budgeting projects can be further classified as either
stand-alone or
mutually exclusive. A stand-alone project has no competing
alternatives.
Mutually exclusive projects involve selecting one project from
among two or
more alternatives. Mutual exclusivity may be due to constraints
in budget
(amount), or limited resources (available land, human resources,
machinery,
etc.).
The typical structure of a capital budgeting analysis involves a
negative initial
outlay, then a series of positive cash flows such as those
provided below:
Example
C0 $(50,000)
C1 15,000
C2 15,000
C3 15,000
C4 15,000
C5 15,000
The above example will be used to illustrate the commonly used
capital
budgeting techniques. The following techniques are stressed in

this unit:
Payback Period: determines how many years it takes to recover
initial cost.
Using this method, shorter paybacks are better (when comparing
mutually
exclusive projects). Payback is often considered the “weakest”
capital
budgeting tool as it does not consider time value of money or
the cash flows
after the payback period.
Reading
Assignment
Chapter 10:
Capital Budgeting
Key Terms
1. Cost of capital
2. Internal rate of return
(IRR)
3. Mutually exclusive
4. Net present value
(NPV)
5. Payback period
6. Profitability index (PI)
7. Stand alone

Using the above example the payback is: 3.33 years. After three
years, it has
recovered $45,000, thus only $5,000 is needed from the 4
th
year.
$5,000/$15,000 results in .33 year.
Net Present Value (NPV): determines present value of inflows
less outflows.
Specifically, NPV is the sum of the present values of a project’s
cash flows at
the cost of capital. The cost of capital is the average rate a firm
pays investors
for use of its long term money which comes from two sources,
debt and equity.
To maximize shareholder wealth, select the capital spending
program with the
highest NPV.
The decision rules for NPV are as follows:
Stand-alone Projects

Mutually Exclusive Projects
Assuming a cost of capital of 10%, the net-present-value of the
above cash
flows would be calculated as:
Time
Period 0 1 2 3 4 5
Cash
Flow
-
50,000.
00
15,000.0
0
15,000.
00
15,000.
00
15,000.
00
15,000.
00 NPV

Present
Value
-
50,000.
00
13,636.3
6
12,396.
69
11,269.
72
10,245.
20
9,313.8
2
6,861.
80
Cost of
Capital
10%
Note, that the cash flows above are calculated for each year
based on this
formula, then summed for the NPV. For example the present

value of $15,000
received in the 4
th
year is: $15,000/1.10
4
= $10,245.20
Internal Rate of Return (IRR): A project’s IRR is the return it
generates on the
investment of its cash outflows. Furthermore, the IRR is the
interest rate that
makes a project’s NPV zero. Finding IRRs usually require an
iterative technique
where you guess the project’s IRR through trial and error. The
first step involves
calculating the project’s NPV using this interest rate. If NPV =
zero, the guessed
interest rate is the project’s IRR. If NPV > 0, try a higher
interest rate. If NPV <
0, try a lower interest rate. In lieu of this iterative process,
financial calculators
and Excel (IRR function) both have features that can calculate
the IRR of a
series of cash flows. For Excel go to insert function, go to
financial functions
and type in IRR. The relationship between IRR and NPV is as
follows:

The above figure can be found in your textbook on page 468.
There are technical problems with IRR which include:
usual projects can have more than
one IRR.
Specifically, the number of positive IRRs to a project depends
on the
number of sign reversals to the project’s cash flows. Thus, IRR
can be
applied to a situation where there is one negative outflow
(initial
investment)
inflows will
be reinvested at the project’s IRR
It should be noted that the NPV and IRR do not always select
the same project
in mutually exclusive decisions. A conflict can arise if NPV
profiles cross in the
first quadrant (see below). In the event of a conflict, the
selection of the NPV
method is preferred.

The above figure can be found in your textbook on page 471.
Profitability Index Ratio (PI) is a variation (an improvement) of
the NPV method
as it is the ratio of present value of inflows to outflows.
Projects are acceptable if
PI > 1. PI is also known as the benefit/cost ratio because
positive future cash
flows are the benefit and the negative initial outlay is the cost.
With mutually
exclusive projects NPV and PI methods may not lead to the
same choices. But,
PI includes the size (magnitude of the initial investment). Thus,
PI is preferred
because it compares the benefits to the size of the initial
investment.
Decision rules for PI:
For stand-alone projects
For mutually exclusive projects

Using the previous example, the profitability index is calculated
as:
PV of benefits/PV of costs = $56,861.80/$50,000 = 1.137
(approve for
investment based on decision rule)
Question 1
· Which of the following statements about the doctrine
of employment at will (EAW) is true?
·
·
· Employment at will states that employers can fire an
employee at any time but have to provide them with a valid
reason.
·
·
· The freedom to terminate the employer-employee
relationship is mutual, both theoretically and practically.
·
·
· The ethical rationale for EAW has both utilitarian and
deontological elements.
·
·
· Civil rights laws are not an exception to the EAW
because it prohibits firing someone on the basis of membership
in certain prohibited classes.
·
Question 2
· Some employers might decide to treat employees well
as a means to produce greater workplace harmony and
productivity. This approach is reminiscent of __________
ethics.

·
·
· deontological
·
·
· utilitarian
·
·
· normative
·
·
· Kantian
·
Question 3
Values that are fundamental across culture and theory are
called:
·
·
· authentic norms.
·
·
· hypernorms.
·
·
· ethnocentric norms.
·
·
· executive norms.
·
Question 4
· Which of the following is an example of reverse
discrimination in America?
·
·
· An African-American interviewer rejects another
African-American based on ethnicity.

·
·
· A female interviewer rejects a male interviewee
because of gender.
·
·
· A white interviewer rejects an African-American
based on ethnicity.
·
·
· A female interviewer rejects another female
interviewee because of gender.
·
Question 5
· Which of the following is discrimination against those
traditionally considered to be in power or the majority?
·
·
· Reverse discrimination
·
·
· Affirmative action
·
·
· Inverse discrimination
·
·
· Backward discrimination
·
Question 6
Discuss the various ways affirmative action occurs
within a workplace. Your response should be at least 200
words in length.

BBA 4751, Business Ethics 1
UNIT IV STUDY GUIDE
Employer Responsibilities and
Employee Rights
Course Learning Outcomes for Unit IV
Upon completion of this unit, students should be able to:
1. Discuss the two distinct perspectives on the ethics of
workplace
relationships.
2. Define “employment at will” (EAW) and its ethical rationale.
3. Explain the difference between intrinsic and instrumental
value in terms
of health and safety.
4. Explain the benefits and challenges of diversity for the
workplace.
5. Define affirmative action and explain the three ways in which
affirmative
action may be legally permissible.
6. Describe the ethical sources of privacy as a fundamental
value.
7. Articulate the manner in which employee monitoring works.
8. Discuss the ethics of monitoring as it applies to polygraphs,
genetic

testing, and other forms of surveillance.
9. Explain why ethics is important in the business environment.
Unit Lesson
This unit encompasses two chapters in our textbook; both
pertain to ethical
decision making in the workplace. The first of the two, Chapter
6, explores
areas of ethical decision making where the law has some
applicability and yet
is constantly evolving.
Ethics in the workplace can be considered from at least two
perspectives.
First, an employer could adopt an approach that treats
employees well for the
sake of the results that it will produce. The alternative approach
is one in
which the employer believes that people are owed a certain
level of respect
and dignity as human beings in the workplace, regardless of
output or
outcome.
It should be apparent that the first approach is based in
utilitarian principles,
and the second in deontological principles.
It should also be apparent that the concept of employment
entails ethics due
to the inherent relationship between the employer and the
employee and the
control, power, and influence the former has over the latter.
Therefore, the

concept of due process is a key component of ethical decision
making. Due
process is the right to be protected against the arbitrary use of
authority.
However, due process does not guarantee employment. As a
matter of law,
most employees in the U.S. are employed under the legal
doctrine of
employment at will.
Employment at will has the pragmatic effect that an employee
can be hired at
will, fired at will, and can leave a job at will (without any form
of notice).
However, there are some legal protections in place, (such as
those related to
Reading
Assignment
Chapter 6:
Ethical Decision Making:
Employer Responsibilities
and Employee Rights,
pp. 261-302
Chapter 7:
Ethical Decision Making:
Technology and Privacy in
the Workplace,
pp. 335-371
Suggested Reading

See information below.
civil rights), which prohibit dismissal on the ground of
membership in a
certain class or group (race, sex, disability, age, national origin,
religion, or
ethnic background).
Another concept related to employment at will is the idea is just
cause. Just
cause is the contention that an employer should be able to
justify (via
evidence) the dismissal of an employee. Currently, the burden
of proof in
cases of alleged discrimination is on the employee (i.e., he or
she must
demonstrate that the dismissal falls into one of the legal
exceptions to
employment at will).
In reaction to downturns in the economy (or other factors),
organizations
sometimes engage in mass reductions in the work force also
known as
downsizing. The concept of downsizing is not necessarily an
ethical issue in
and of itself. Rather, it is the method or process in which

downsizing is
implemented that implicates ethics and ethical decision making.
For example, the following questions all have ethical
implications. Who will
be selected for downsizing? Will one group (e.g., workers over
50 years of
age) be affected disproportionately? How will the process be
communicated
and implemented? How will all stakeholders be affected? Have
alternatives
to downsizing been identified and explored?
Working conditions are an additional consideration for ethics in
the
workplace. However, the extent of an employer’s
responsibilities for the
health and safety of workers is an area of ongoing debate. The
attributes of
health and safety have instrumental value because they result in
productivity
for the organization. At the same time, these attributes also
have intrinsic
value in that they are attributes of human beings’ lives:
something that we
believe to be priceless.
The U.S. has a government organization that is charged with
establishing
health and safety standards in the workplace. OSHA, the
Occupational
Safety and Health Administration, was established in 1970, and
there is an
ongoing debate about the methodology that should be used by
that
organization to determine workplace safety: the safest feasible

standards vs.
a cost-benefit analysis approach.
There are many ethical aspects to the latter approach, not the
least of which
is the concept of putting a price on people’s health and their
lives.
Nevertheless, such an approach may be one of the few objective
means to
measure health and safety in the workplace.
Other important dynamics of the workplace that are covered in
Chapter 6 of
our textbook include child labor, discrimination, diversity, and
affirmative
action.
Chapter 7 of our textbook focuses on the issues of privacy in
the workplace
and how the advancement of technology has created challenges
to that
somewhat vague concept. In general, there are two aspects to
the concept
of privacy. The first is a presumed right to be “left alone,” and
the second is
the presumed right to control information about oneself.
Such presumed rights are founded on an individual’s
fundamental, universal
right to autonomy and in our right to make decisions about our
personal
existence. When considering this idea in the workplace, the
concept of
reciprocal obligation implies that although an employee has an
obligation to

respect the goals and property of the employer, the employer
has a
reciprocal obligation to respect the rights of the employee,
including the
employee’s right to privacy.
The idea of rights brings the concept of hypernorms into the
discussion
because the perceived universal rights, such as freedom of
speech,
personal freedom, informed consent, right to privacy, and the
like, are basic
and fundamental to all civilized human existence. However, the
introduction
and advancement of technology in the workplace creates
significant
challenges for all stakeholders. For example, traditionally,
many would
consider photographs to be private. However, social media has
become
extremely popular and many choose to share photographs of
themselves
with others.
Moreover, technology affords employers the ability (and the
right?) to
monitor employees in the workplace in many forms including
email
monitoring, Internet monitoring, video monitoring, cell phone
and text

messaging monitoring, etc. The ability to monitor does not
address the
ethical aspect of whether monitoring should be done. However,
when
company property is used, the concept of property rights also
comes into
play, which complicates the issues even more.
Additional forms of monitoring in the workplace include drug
testing,
polygraphs, background, and psychological testing.
There are many questions that remain about ethical decision
making in the
workplace that are related to these complex issues.
Nevertheless, an
approach that remains sensitive to the concerns of employees
and strives
toward a balance that respects individual dignity while holding
individuals
accountable for their particular roles in an organization offers a
considered
approach to these issues.
Reference
Hartman, L. P., DesJardins, J., & MacDonald, C. (2014).
Business ethics:
Decision making for personal integrity & social responsibility
(3rd ed.).
New York, NY: McGraw-Hill.

Suggested Reading
Click here to access the PDF of the Chapter 6 Presentation.
Click here to access the PDF of the Chapter 7 Presentation.
McMahon, J. M. (2009, March). Lost in cyberspace: ethical
decision making in
the online environment. Ethics and Information Technology,
11(1),
1-17.
Pandiani, J. A., Banks, S. M., & Schacht, L. M. (1998,
November). Personal
privacy versus public accountability: A technological solution
to an
ethical dilemma. Journal of Behavioral Health Services &
Research.
25(4), 456.
Hodson, T. J., Englander, F. & Englander, V. (1999). Ethical,
legal and
economic aspects of monitoring employee electronic mail.
Journal of
Business Ethics, 19(1), 99-108.
https://online.columbiasouthern.edu/CSU_Content/courses/Busi
ness/BBA/BBA4751/14N/UnitIV_Chapter6_Presentation.pdf

https://online.columbiasouthern.edu/CSU_Content/courses/Busi
ness/BBA/BBA4751/14N/UnitIV_Chapter7_Presentation.pdf

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