## Introduction

In making investment decisions, cash flows are considered to be more important than accounting profits. This is from a financial management’s point of view. Any company will invest its finances for the sake of deriving a return, which is useful for four main reasons. One of them is to reward the shareholders or owners of the business for committing their money and by foregoing their current purchasing power for the sake of current and future return.

Another reason would be to reward creditors by paying them regular returns in form of interest and repaying them the principal when it falls due. Furthermore, to be able to retain part of earnings for plow back purposes, which facilitates not only the company’s growth presently and in the future but also increasing the size of the company in terms of sales and assets, would be another reason. This would even increase share prices, which would further enable the company to raise additional finance (Rashd 12).

Such a return is necessary to keep the company’s operations moving smoothly and thus allow the above objective to be achieved. A financial manager with present investment policies will be concerned with how efficiently the company’s funds are invested because it is from such investment that the company will survive. Investments are important because they influence the company’s size, growth and company’s risks.

In addition, the investment decision-making process, also known as capital budgeting, involves the decision to invest the company’s current funds in viable ventures whose returns will be realized for long periods in the future.

Capital budgeting as financial planning is characterized by several factors such as long term decisions meaning extending beyond one year in which case they are also expected to generate returns that are long term in nature, the investment is usually heavy (heavy capital injection), and as such has to be properly planned and these decisions are irreversible implying that any mistake may cause heavy losses to the company.

## Investment Decisions

Such decisions are of importance because they will influence the company’s size that is, fixed assets, sales, and retained earnings. They also increase the value of the company’s shares and thus its credibility. The fact that they are irreversible means they have to be handled carefully to avoid any mistake, which can lead to failure of such investment. Due to heavy capital outlay, more attention is required to avoid loss of huge sums of money, which in the extreme, may lead to the closure of such a company. However, these decisions are influenced two major factors discussed below.

## Political factors

Under conditions of political uncertainty, such decisions cannot be made as it will entail an element of risk, which would lead to failure of such an investment. Thus, political certainty has to be analysed before such decisions are made. In other words, such factors must be taken into account such that the company forecasts the inflows and outflows within given limitations such as the degree of competition, performance of the economy and changing tastes, which influences the ability to generate sufficient return from a venture that will pay not only interest but also the principal on such funds.

## Technological factors

These factors influence the returns of the company because such technology will affect the company’s ability to utilise its assets to the utmost ability in particular if such assets become obsolete and cannot generate good returns or the output of such machines may be low with time and may not meet planned expectations, which in most cases will have an impact on inflows of the venture (Ogilvie 5).

## Capital Budgeting and NPV

The decision to replace takes into account the several factors including the estimate of actual cash outlay attributable to the new machine, incremental cash flows, computation of the NPV of incremental cash flows, summation of the present value of the expected salvage value to the P.V. of the incremental cash flow, and ascertaining whether the NPV (net present value) is positive or whether the IRR (internal rate of return) exceed the cost in which case it should be invested if it is positive.

Looking to evaluate whether Fonderia should replace the current semi-automated machines with the new Vulcan mold machine, Francesca Cerini, the managing director should consider various techniques of project evaluation such as the net present value (NPV) and internal rate of return (IRR).

Several techniques that the managing director can apply to be able to make sound financial recommendation to the board of directors of Fonderia on whether the company should replace the current semi-automated machines with the new Vulcan mold machine exit. The managing director, Francesca Cerini, could apply both the discounted and the non-discounted techniques to be able to advice the board on the right financial decision to make. Under the non-discounted techniques, cash flows are considered without necessarily taking into account the time value of money (TVM).

## Payback Period

These techniques involve the payback period (PBP), which has been highly used under the non-discounted techniques of evaluation. The PBP method gauges the viability of a venture by taking the inflows and outflows over time to ascertain how soon a venture can payback and for this reason, PBP (or payout period or payoff) is that period of time or duration it will take an investment venture to generate sufficient cash inflows in order to payback the cost of such an investment.

This is a popular approach among the traditional financial managers because it helps them ascertain the time it would take to earn cash from operations of the original cost of the venture. This method is usually an important preliminary screening stage of the viability of the venture and it may yield clues to profitability, although in principle it will measure how fast a venture may payback rather than how much a venture will generate in profits and yet the main objective of an investment is not to recoup the original cost but also to earn a profit for the owners or investors (Hamilton 34).

Computation of payback period in this case is valid as it will demonstrate whether the new Vulcan mold machine will be able to generate the initial capital outlay within the acceptable payback period of 5yrs, as planned by Fonderia. In this case, it is estimated that the sales of this company would be 280 million Euros. This is a case of uniform cash flows for eight years. Under uniform annual incremental cash inflows, if the venture or an asset generates uniform cash inflows then the payback period (PBP) is calculated as below.

PBP = Initial cost of the venture/Annual incremental cost

The initial cost of the new Vulcan mold machine is expected to total € 1,010,000 and promises returns of € 280,000,000 per annum for eight years. Therefore

PBP == 0.0036 years

The shorter the PBP, the more viable the investment is and the better the choice of such investments. In this case, the company’s acceptable payback period is 5 years and by the look of things, this initial capital outlay will be realized in terms of cash inflow in a period much shorter than the acceptable payback period. Under this technique, it will be advisable to say that the new Vulcan mold machine is worth investing in if the expected cash flow is as above.

Alternatively, PBP may be gauged against the term of the loan in which case, the PBP method will give a high ranking to all those ventures paying back before the term of the loan and the highest ranking will be given to those projects with the shortest PBP. However, in assessing the viability of a venture, it is also important to see which venture brings returns earlier when other variables are held constant. The payback period method has some advantages including the fact that it is simple to use and can be understood easily.

This has made it popular among executives, especially traditional financial managers in ascertaining the viability of a venture. It is deal under high-risk investments because it will identify which venture will payback earlier thus minimising the risks of a venture. It is advantageous when choosing between mutually exclusive projects because it will give a clue as to which venture is viable, especially when one considers the shortest PBP and the highest inflow of a venture.

However, this technique has been hit by limitations such as it does not take into account the time value of money and assumes that a dollar received in the 1^{st} year and in the nth year has the same value. This tries to rank them together to ascertain the PBP, which is unrealistic given that a dollar now is valuable than a dollar N years from now. This shows that PBP method does not measure the profitability of a venture but rather measures the period of time a venture takes to pay back the cost.

The method is outside looking meaning it is lender oriented rather than owner oriented. Moreover, the PBP method ignores inflows after PBP and as such, it does not accommodate the element of return to an investment. This method will not have any impact on the company’s share prices because profitability, which is one of the most important factors in gauging the company’s value of shares is not a function of PBP and as such, the method fall short of meeting the criteria of investment appraisal.

## Average Rate of Return

The company could use the accounting rate of return (ARR) to evaluate this project as well. This method uses accounting profits from financial status to assess the viability of investment proposal, by dividing the average income after tax by average investment. The investment would be equal to either the original investment plus the salvage value divided by two or the initial investment divided by two or dividing the total of the investment book value after dividing with the life of the project. This method is also known as financial statement method or book value method. The rate of return on asset method or adjusted rate of return method is given by following formula.

ARR = Average income/Average investment x 100 or Average income – Average depreciation/Initial investment

Unlike PBP, this method will ascertain the profitability of an investment and it will give results, which are consistent with those given by return ratios. To calculate the accounting rate of return of the new Vulcan Mold machine, the following formula would be invoked.

Depreciation = 1,010,000 / 8 years= €126,250

The best method of depreciation to use should be that which will produce larger depreciation changes in the first few years of the asset’s life and lesser changes in the later years because this will produce a higher tax shield to the company, with higher value of inflows. Thus, reducing balance is preferred, as compared to the sum of digits and straight line method. If the asset produces a salvage value at the end of the year, this will increase the inflows of the payback period.

This value is only used to ascertain whether the company will reduce the original cost of investment to obtain average investment. ARR method will accept those projects whose ARR are higher than that set by the management or bank rates, and it will give the highest ranking to ventures with highest ARR and vice versa. This method is advantageous because it is simple to understand and use. It is readily computed from the accounting data thus much easier to ascertain.

Again, it is consistent with profitability objectives, as it analyses the return from entire inflows and as such, it will give a clue or a hint to the profitability of a venture. However, it has shown limitations such as ignoring the time value of money, and it does not consider how soon the investment should recover the cost that is, it is owner looking as opposed to creditor oriented. Time value of money is a significant aspect of decision making in finance.

Because both the payback period and the accounting rate of return do not take into account this factor, we shall apply other techniques that take into consideration the time value of money. These include the net present value method and the internal rate of return technique (Schwalbe 45).

## Replacement Decision

The Net Present Value Method discounts inflows and outflows and ascertains the net present value, by deducting discounted outflows from discounted inflows to obtain the net present cash inflows that is, the present value method will involve selection of rate acceptable to the management or equal to the cost of finance and this will be used to discount inflows and outflows. Net present value will be equal to the present value of inflow minus the present value of outflows. If net present value is positive, investment is encouraged and if NPV is negative, investment is highly discouraged.

Present Value (inflow) – Present Value (outflows) = Net Present Value

Initial outflow is at period zero and its value is the actual present value. With this method, an investor can ascertain the viability of an investment, by discounting outflows. In this case, a venture will be viable if it has the lowest outflows and highest inflows. In the case of Fonderia, we shall be able to make a decision on whether to acquire the new Vulcan mold machine or retain the six semi-automated stamping machines, based on the net present value.

The firm’s cost of capital is 14%. It is estimated that the new proposed Vulcan mold machine will save the company at least €5,200 per annum. Through improved labour efficiency, the company should consider this an income. The decision to replace the old machines takes into account the following; bearing in mind that the old machines, according to the management of the company, can be replaced only after the sixth year.

- Estimated actual cash outlay attributable to the new machine
- Determination of the incremental cash flows
- Computation of the NPV of incremental cash flows
- Present value of the expected salvage value to the P.V. of the incremental cash flow
- Ascertain whether the NPV (net present value) is positive or whether the IRR (internal rate of return) exceeds the cost in which case, investment is encouraged if it is positive.

It is also assumed that the two machines are mutually exclusive and both cannot be disposed at the same time in the company. The old machines still have about 4years, useful economic life to go. Replacement will mean foregoing cash flows from the old machines. For the company to forego such inflows, the new machine should be in a position to generate more cash inflows and perhaps more than non-financial benefits, such as efficiency and effectiveness.

In this case, we shall consider whether it is economical to replace the six semi-automatic machines with the new proposed Vulcan mold machine at the end of the second year. This would be computed as follows

Initial capital for new machines €

Cash price of new machine 1,010,000

Less market value of old machine (130,000)

Less tax shield on sale of old machine:

Market value 130,000

Less net book value 285,125

Loss on disposal 155,125

Tax shield = 43% x 155125 (66,704)

Incremental initial capital 813,296

Depreciation of new machine = = 126,250

Depreciation of old machine = 47,520

Incremental depreciation 78,730

NB: The NBV of old machine after 2 years is € 285,125. This NBV will be depreciated over the remaining 4 years.

### Determine operating cash flows

Incremental cash flows 0

Savings in labour efficiency 5,200

Incremental power cost (14,550)

Incremental maintenance cost (55,500)

Savings on labour cost 311,740.80

EBDT 246,890.80

Less incremental depreciation (non-cash item) (78,730)

Incremental EBT 168,160.80

Less tax @ (43%168160.80) 72,309.14

Incremental EAT 95,851.66

Add back incremental depreciation 78,730.00

Annual cash flow 174,581.66

Terminal cash flows at the end of year 2 are equal to 174,581.66 while the foregone incremental salvage value is (130,000). This is because the new machine does not have salvage value.

## The Net Present Value (NPV)

Under the NPV method, a company should accept an investment venture if Net Present Value is positive that is, if the present value of cash outflows exceeds that of cash inflows or at least are equal to zero. In other words, NPV should be greater or equal to zero. This will rank ventures, giving the highest rank to that venture with highest NPV.

This would give the highest cash inflow or capital gain to the company. In the above case, using the net present value technique to evaluate the proposals, it is observed that the net present value of cash flows is negative and thus the management is not advisable to take up or accept this proposal at the end of the second year. The net present value method is normally applied as a project evaluation technique because it has several advantages such as recognizing time value of money.

The techniques take into account the entire inflows or returns and as such, it is a realistic gauge of the profitability of a venture. Moreover, it is consistent with the value of a share. A positive NPV will have the implication of increasing the value of a share and it is consistent with the objective of maximising the welfare of the owner because a positive NPV will increase the net worth of owners. However, the NPV method could not pass without limitations because it is difficult to use.

Its calculation uses the cost of finance, which is a difficult concept because it considers both implicit and explicit variables. Whereas NPV ignores implicit costs, it is ideal for assessing the viability of an investment under certainty because it ignores the element of risk. It may not give a good assessment of alternative projects if the projects have unequal lives, returns or costs.

Furthermore, it ignores the Payback period. In a bid to try and convince the board that the new Vulcan mold machine is worth investing in, the managing director can as well evaluate the benefits of the six semi- automatic machines and the newly proposed machines. The evaluation of the current machines in terms of what they generate in terms of cash flows both presently and in future is as follows, assuming a forty hour week meaning 8hours in a day.

## Analysis of cash inflows of the Semi- Automated machines

Expected annual sales 280,000,000

Less cost;

Labour cost

(24 workers*8hrs*210days*€7.85) 316,512

Annual depreciation 47,520

Annual Maintenance supplies cost 4,000

Annual Power cost 12,300

Total operating cost 380,332.00

Operating cash flow 279,619,668.00

Less tax (43%279,619,668) 120,236,457.24

EAT 159,383,210.80

Add back depreciation charged 47,520.00

Net cash flows 159,430,730.80

Assuming that the company will receive this cash flow for eight years at its cost of capital of 14%, we discount this amount to get its present value and then compare it to the other machine. Therefore, Net present Value (NPV) = Present values of cash inflows – present value of cash outflow that is,

NPV = PV (Inflows) – PV (Outflows)

PV = Annuity x PVAF _{(14%8yrs)}

= 159,430,730.80x 4.6389

= €739,583,216.90

Present value of salvage value of the six semi automatic machines

PV = 130,000 x PVIF_{ (14%8yrs)}

= 130,000 x 0.3506

= €45,578

Total Estimated cash flow = 739,583,216.9+45,578 = 739,628,794.90

NPV = 739,628,794.90– 415,807 = €739,212,987.90

The estimated NPV of the six semi- automated machines is 739,628,794.90.

## Analysis of cash flows of the new Vulcan mold machine

Expected annual sales 280,000,000

Annual Savings 5,200

Total Expected income 280,005,200

Less cost operating;

Labour cost

(2 workers*8hrs*210days*€11.36) 38,169.60

Additional Labour cost

(24 workers*8hr*210*€ 4.13) 166,521.60

Annual depreciation 126,250.00

Annual Maintenance supplies cost 59,500.00

Annual Power cost 26,850.00

Total annual operating cost 417,291.20

Operating cash flow 279,587,908.80

Less tax (43%279,587,908.80) 120,222,800.80

EAT 159,365,108.02

Add back depreciation 126,250.00

Net cash flows 159,491,358.02

## Assumptions

It is assumed that it will be OK for the workers union to reassign the 24 workers to the position of Janitors and they accept to be paid €4.13 per hour. Assuming that the company will receive this cash flow for eight years at its cost of capital of 14%, we discount this amount to get its present value and then compare it to the other machine. Therefore, Net present Value (NPV) = Present values of cash inflows – present value of cash outflow that is,

NPV = PV (Inflows) – PV (Outflows)

PV = Annuity x PVAF _{(14%8yrs)}

= 159,491,358.02x 4.6389

= €739,864,460.70

Total Estimated cash flow = €739,864,460.70

NPV = €739,864,460.70 – 1,010,000

= € 738,854,460.70

The NPV of the Vulcan mold machine is estimated to be €739,854,460.70 at the end of its useful economic life.

Based on the above calculations, it is observed that the new Vulcan machine is more economical than the six semi-automated machines because it gives the higher net present value. However, it must be noted that during the calculations, certain assumptions were made. These assumptions are that it will be acceptable to the union to reassign the 24 workers who work on the semi automated machines to the positions of the Janitors at the rate of €4.13 per hour.

The annual income of €280 million will be realized for eight years. Again, the cost of capital of the company will remain unchanged at 14% and this rate incorporates the risk premium as well. It is assumed that the company can only operate 8 hours in one day, translating to 1680hrs per year.

Through this, there will be no major barring factors such as machine break down and strikes from workers to slow down production. The last assumption is that other costs and factors such as available markets will remain constant, and that the company will continue to exist during the life of these machines that is, for 8 years.

## Internal Rate of Return (IRR) and Risk-Adjusted Rate of Return

In trying to reach a comfortable decision, it will also be noble for the managing director to use other techniques of project evaluation such as the Internal Rate of Return (IRR) and see whether the new proposal will qualify under this technique as well. The IRR method is a discounted cash flow technique, which uses the principle of NPV. It is the rate of return which equates the present value of cash outflows of an investment to the initial capital.

IRR = Present Value (cash inflows) = Present Value (cash outflows) or IRR is the cost of capital when NPV = 0.

It is also called the internal rate of return because it depends wholly on the outlay of investment and the proceeds are associated with the project and not a rate determined by variables outside the venture. IRR will accept a venture if its IRR is higher than or equal to the minimum required rate of return, which is usually the cost of finance, also known as the cut off rate or hurdle rate and in this case, IRR will be the highest rate of interest a firm would be ready to pay to finance a project using borrowed funds without being financially worse off by paying back the loan (the principal and accrued interest) out of the cash flows generated by that project.

Thus, IRR is the break-even rate of borrowing from commercial banks. IRR has various advantages, which include consideration of time value of money, cash flows over the entire life of the project and compatibility with the maximisation of owner’s wealth. If it is higher than the cost of finance, owners’ wealth will be maximised.

Unlike the NPV method, it does not use the cost of finance to discount inflows and for this reason; it will indicate a rate of return of the project’s interval against which various ventures can be assessed to determine their viability. Because of the foregoing advantages, the managing director of Fonderia can apply this technique to help her make more informed decisions instead of relying on the NPV technique alone.

However, this technique does not pass without limitations which include its tedious nature and difficultly in the usage. It is also expensive to use because it calls for trained manpower and may use computers, especially where inflows are of large magnitude and extending beyond the normal limits. It may give multiple results, some involving positive IRR in which case, it may be difficult to use in choosing the more viable venture (Witzel 23). The internal rate of return of a project is that rate of return at which the projects NPV = 0

Therefore the IRR of the projects can be calculated as follows:

The IRR of the current semi-automated machines

Calculating NPV at the lower rate i.e. 14%

NPV = PV (Inflows) – PV (Outflows)

PV = Annuity x PVAF _{(14%8yrs)}

= 159,430,730.80x 4.6389

= €739,583,216.90

NPV = 739,628,794.90– 415,807

= €739,212,987.90

Calculating NPV at higher rate will result in negative NPV, such that we are able to equate the two using interpolation method to see where it crosses the X-axis.

NPV = PV (Inflows) – PV (Outflows)

PV = Annuity x PVAF _{(100,000%8yrs)}

= 159,430,730.80x 0.001000

= € 159,430.73

NPV = 159,430.73 – 415,807

= – €256,376.27

IRR – Lower rate/NPV at lower rate = Higher rate – IRR/ NPV at Higher rate

IRR – 14/739,212,987.90= 100,000 – IRR/ – 256,376.27

256,376.27 (IRR – 14) = 739,212,987.90 (100,000 – IRR)

256,376.27 IRR – 3,589,267.78 =73921298790000 – 739212987.90 IRR

739469364.2 IRR = 7.39213×13

IRR ≈ 99.965.33%

### The IRR of the Vulcan mold machine

Calculating NPV at the lower rate i.e. 14%

NPV = PV (Inflows) – PV (Outflows)

PV = Annuity x PVAF _{(14%8yrs)}

= 159,491,358.02x 4.6389

= €739,864,460.70

Total Estimated cash flow = €739,864,460.70

NPV = €739,864,460.70 – 1,010,000

= € 738,854,460.70

Calculating NPV at higher rate that will result in negative NPV such that we are able to equate the two using interpolation method to see where it intersects the X-axis.

NPV = PV (Inflows) – PV (Outflows)

PV = Annuity x PVAF _{(100,000%8yrs)}

= 159,491,358.02x 0.001000

= € 159,491.36

NPV = 159,491.36 – 1,010,000

= – €850,508.64

IRR – Lower rate/NPV at lower rate = Higher rate – IRR/ NPV at Higher rate

IRR – 14/738,854,460.70= 100,000 – IRR/- 850,508.64

850,508.64 (IRR – 14) = 738,854,460.70 (100,000 – IRR)

256,376.27 IRR – 3,589,267.78 =738854460700000 – 738,854,460.70 IRR

739,110,836.97IRR = 738,854,464,289,268.00

IRR ≈ 99.653.13%

A project that carries a normal amount of risk and does not change the overall risk composure of the firm should be discounted at the cost of capital. Investments carrying greater than normal risk will be discounted at a higher discount rate. In this case, it is assumed the risk premium of Fonderia would be 6%. This means that the company has accepted or added more risk to its operations, by accepting this amount of risk premium. Apart from the normal rate, Fonderia should consider incorporating this risk premium to its normal hurdle rate. This means that the appropriate rate of return should be calculated as follows, if the company’s beta is 1.25.

Cost of capital = (14 + 6)= 20%

Rate 20% is called the risk-adjusted rate of return and is applicable to many companies because it is simple and can be easily understood. It has a great deal of intuitive appeal for risk-averse businessmen. It incorporates an attitude (risk-aversion) into uncertainty. However, it is difficult at times to use it because there is no easy way of deriving a risk-adjusted discount rate. It is based on the assumption that investors are risk averse while in the real sense not all investors are risk averse.

Bearing in mind that investors of Fonderia have an expected return on their investment, Cerini should also take into account this factor. The return on equity in this case is 18% and anything in terms of returns that does not meet this threshold should be rejected. The company should be able to demonstrate that the return that will accrue from this project is able to meet the 18% expected return on equity. Return on Equity is normally the amount of money an investor expects from investing or owning a company and is always expressed as a ratio of the profits to shareholder’s funds.

In finance and financial management, decisions are normally made based on both monetary and non monetary benefits that may accrue from a proposal being considered. In the case of Fonderia, Francisca Cerini, as the managing director, needs not only to consider monetary benefits but also non monetary benefits that shall accrue from the replacement of the six semi- automated machines with the new Vulcan Mold machine.

Looking at the monetary benefits, it is evident that the new Vulcan mold machine would bring more monetary advantage to the company if the proposal is accepted by the company. The net present value of its cash flow is higher than that of the six semi- automatic machines currently in use. The NPV of the Vulcan mold machine stands at € 738,854,460.70, as compared to that of the six semi- automated machines, which currently is €739,212,987.90.

Based on the NPV technique, I would recommend that the project be taken to the board for consideration. The proposal also gives an internal rate of return that is much higher than the company’s rate of return of 18%. Under the IRR technique, it is advisable for Francesca Cerini to consider taking the proposal to the board because the IRR of the project is acceptable to the company.

It is also evident that if the amount of money that would be used in the acquisition of the new Vulcan mold machines is going to be borrowed then there should not be any course for alarm since this project will pay it back within 0.0036yrs. As the company accepts a pay back period of 5yr on its projects, this could also be another way to convince the board to make the decision in her favor (Kerzner 76).

## Conclusion

The point of her argument should be on the right time to replace the six semi automated machines with her proposal. If the machines are going to be replaced before the end of their useful economic life then their market value should be considered in order to get extra money to help in the investment of the new Vulcan mold machines. This would reduce the cost of investment of the Vulcan mold machines by the value of the market price of the old machines.

In this case, the replacement after the second year is not viable since the NPV of that proposal is 49,007.14, which makes it difficult for the board to accept the replacement at the end of the second year of the life of the old machines. It is therefore appropriate for Francesca Cerini to bear in mind that replacement at the end of year two is not possible and she has to wait until the end of the life of the old machines in order to replace them.

She should also consider the acceptable risk premium of the company. In this case, Fondera has a beta of 1.25 and there is also in existence a risk premium of 6% on the exchange rate of euro currency to the dollar. This means that the cost of the machine, if imported, could go up or down as appropriate but the company will only accept a risk of 1.25.

Other than the monetary factors, Francesca Cerini should also consider the non-monetary factors. It should also be considered that any negotiations on workers’ welfare are done by the workers union and she should be able to convince the board on how she will influence the most favourable outcome for the company. For example, convincing the workers’ union to allow the company reassigns the 24 workers of the old machines to the position of Janitors.

Alternatively, dismissing some of the workers and allowing the company to save on labour would be another option. Acquisition of the new Vulcan mold machine is expected to increase the quality and efficiency of production. It is also true that the company would be at a strategic position given the acquisition of the new Vulcan mold machine since it will increase the product quality and lower the scrap rates. The new machine is also likely to result in extra space that the company does not need at the moment.

This would be a great challenge in trying to convince the board since the company does not need the extra space that would be freed up by the replacement of the old machines. Going by the monetary factors, it would be ideal to take the proposal to the board for consideration but not before Francesca Cerini can handle all the other non monetary challenges and also bearing in mind that the economies of Europe are expected to perform dismally. In my honest opinion, it would not be ideal to take the proposal to the board for consideration yet.

## Works Cited

Hamilton, Albert. *Handbook of Project Management Procedures.* New York: TTL Publishing, Ltd, 2004. Print.

Kerzner, Harold. *Project Management: A Systems Approach to Planning, Scheduling, and Controlling*. New York: Wiley, 2003. Print.

Ogilvie, John. *CIMA Official Learning System Management Accounting Financial Strategy.* New York: Butterworth-Heinemann, 2008. Print.

Rashd, Muhammad. *Power Electronics Handbook: Devices, Circuits, and Applications*. New York: Elsevier, 2010. Print.

Schwalbe, Kathy. *Introduction to Project Management*. New York: Course Technology, 2005. Print.

Witzel, Morgen. *Fifty key figures in management*. London: Routledge, 2003. Print.