Managerial Accounting Assignment 2

Assignment 2

Name

Strayer University

Managerial Accounting ACC560

Professor Dr. Ralph J. Palumbo

June 8, 2014

Introduction

Johnson Controls, Inc. began in the late 1800’s with Warren Johnson. Warren Johnson was the invented of the pneumatic temperature control system while he was a college professor to prevent his classes from being continually interrupted by janitorial staff. This invention quickly spread to use in buildings all over the world resulting a fast paced business growth and so began the Johnson Service Company. From the beginning of the company’s inception, the focus was on energy efficiency and exploration of new innovations to meet the needs of customers. Today, Johnson Controls, Inc. has grown to a diversified organization in the global market place and a leader in the building and automotive industries. As a leader in the global market place, Johnson Controls, Inc wants to increase its capital investments to approximately 1.7 million. This investment is targeted to increased growth and margin expansion for the company. As with any organization, it is important to evaluate investments and assess if the risks involved will create a return for the company. Only after careful analysis should an organization proceed with investments that have demonstrated through examination to be profitable.

Evaluating Capital Investments

The process in which a company makes decisions on capital investments is known as capital budgeting. Johnson Controls, Inc. should evaluate prospective financial investments using capital budgeting. Capital budgeting involves choosing among various capital projects to find the one(s) that will maximize a company’s return on its financial investment (Weygandt, Kimmel, & Kieso, 2012). Capital investments can be evaluated by different methodologies. Organizations use these methodologies to gauge the effectiveness of their investments. In order to gauge how an investment will perform an...