Rachel Rodriguez was very inquisitive growing up. Rachel, like most children in developed economies, enjoyed playing on the computer. Her curiosity went further than normal. Rachel was in the habit of cracking open her laptop, computer and cellphone to see how the electronics were connected and to understand how the devices worked. Initially Rachel’s parents were not amused. Eventually they encouraged her interest in electronics. Years later Rachel enrolled in a computer class in high school and became certified in Microsoft Office. During high school summers Rachel worked for a local computer store. When business was slow the owner would teach her how computers worked. Rachel went on to major in computer science at the University of Maryland. Her long-term desire was to own her own computer consulting business, helping clients set up their computer networks and servicing all their information technology (“IT”) needs. After earning B.S. in Computer Science from the University of Maryland, Rachel got a job at a local bank as an IT help desk technician. After five years at bank, Rachel started her own computer consulting company. While Rachel’s computer consulting had been successful, many of the company’s clients wanted to purchase the computer equipment from the business as well. Recently Rachel’s Enterprise Solutions Inc (“ESI”) has begun offering leased computer equipment as well as consulting services. ESI’s target market was small businesses. After graduating from Regent University with a MBA degree you took a job as a finance analyst at ESI. Rachel believes that you have enough experience to help with the capital budgeting decisions now facing ESI. Rachel’s ESI had the following balance sheet and income statement for the year ending December 31, 202x.
1. Calculate the capital budgeting decision metrics for the proposed expansion in ESI owned computer equipment. Calculate each of NPV, IRR, MIRR, Payback and Profitability Index. Show all calculations including initial outlay, annual differential cash flows, terminal value, and weighted average cost of capital. (30 points).
2. In addition to the capital budgeting calculations, discuss at least three important qualitative issues associated with the proposed purchase of additional computer equipment. (10 points).
3. Calculate the capital budgeting decision metrics for the proposed outsourcing of ESI’s online help desk to New Dehli, India. Calculate each of NPV, IRR, MIRR, Payback and Profitability Index. (30 points).
4. Discuss the challenging issues Rachel may create for ESI by outsourcing online help services to an overseas location such as India. In the discussion include any biblical moral principles that apply to ESI’s decision. (10 points).
