Capital Budgeting Decisions

Capital Budgeting Decision

Shelly Resendez

9217 General Worth Drive

Keller, TX. 76244

Diamondshell2009@yahoo.com

708-935-0453

AC505 – Managerial Accounting

02/20/11

Between 20,000 to 25,000 years ago, painting was first discovered in the caves of France and Spain. Artists, in the beginning used easily available natural substances to make paint, such as natural earth pigments, charcoal, berry juice, lard, blood, and milkweed sap. Later, the ancient Chinese, Egyptians, Hebrews, Greeks, and Romans used more sophisticated materials to produce paints for limited decoration, such as painting walls. Paint was first used as a protective coating by the Egyptians and Hebrews, who applied pitches and balsams to the exposed wood of their ships. The twentieth century has seen the most changes in paint composition and manufacturing. Today, synthetic pigments and stabilizers are commonly used to mass produce uniform batches of paint. New synthetic vehicles developed from polymers such as polyurethane and styrene-butadene emerged during the 1940s. Painting is referred to as the keystone industry because nearly every other sector of the manufacturing economy uses its products. Due to the ongoing decline in business and consumer spending globally in 2008 and 2009, the U.S. Department of Commerce estimated a market decline and flat growth by the turn of the decade (http://researchwikis.com/Paint_Marketing_Research). Clark Paints is a paint company that has been looking for the best ways to trim total production costs. The company wants to examine if making paint cans instead of purchasing would help save money while also returning a minimum rate of return of 12%. Based not only on the Cost to produce method, the Payback period, the Annual Rate of Return, the Net Present Value, and the Internal Rate of Return of the project, the company should find the project acceptable.

In the Cost to Produce method, we compared the cost to make the paint cans versus the cost...