Chapter 12 – Strategy and the Analysis of Capital Investments
12-61 Research Assignment, Strategy (45 Minutes)
This assignment pertains to the following article: Thomas L. Barton and John B.
MacArthur, “The New Hue of Green for the Management Accountant,” Strategic Finance
(March 2011), pp. 36-41. The article focuses on investment in energy-renewal projects
and the role of the management accountant in the evaluation of those investments. The
article uses as the basis of discussion the actual investment decision (wind turbine
investment for Jiminy Peak Mountain Resort) faced by a ski resort located in western
Massachusetts. Useful websites include the following:
www.jiminypeak.com
www.eos-ventures.com
http://articles.cnn.com/2009-02-27/tech/ski.wind.turbine_1_jiminy-peak-mountain-
resort-wind-turbine-zephyr?_s=PM:TECH
http://northernpower.kiosk-view.com/bolton-valley
1. According to the authors of the article, what was the managerial question (that
is, decision) facing management of Jiminy Peak Mountain Resort?
Jiminy Peak Mountain (Ski) Resort is similar to other such resorts in two major respects:
(1) they use a significant amount of energy (snow-making machines), and (2) this
would help meet the power needs of the resort. The importance of this decision is
heightened by the rapidly increasing electric rates paid by the company.
2. List the major relevant costs and cost savings (financial benefits) associated
with the investment decision proposal you identified above in 1.
the net investment outlay for the wind turbine was partially offset by a grant
($582,000) from the Renewable Energy Trust Fund (supported by a special
charge on Massachusetts electric bills)
excess energy generated by the wind turbine could be diverted (i.e., “sold”) to the
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Chapter 12 – Strategy and the Analysis of Capital Investments
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3. Describe any nonfinancial benefits or considerations associated with the
proposed investment.
As described in the article:
the proposed investment (sustainable energy production) helps fulfill a corporate
mission—to protect the environment
the investment may help attract more visitors (i.e., those individuals who are
4. According to the authors, what primary role can management accountants play
in terms of evaluating capital investment proposals, similar to the one faced by
the management of Jiminy Peak Mountain Resort?
The following critical roles in the capital investment analysis process can be assumed
by the organization’s management accountants:
Identifying relevant costs and benefits (both financial and nonfinancial)—see
parts 2 and 3 above; the general checklist included as Table 1 in the article can
be used to start the investment-evaluation process
Conducting a post-investment analysis (i.e., a post audit) of the investment; Table
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Chapter 12 – Strategy and the Analysis of Capital Investments
12-62 NPV Analysis; Sensitivity Analysis; Data Tables in Excel (45-60 minutes)
The following tutorial should be completed before completing this assignment:
http://office.microsoft.com/en-us/excel-help/calculate-multiple-results-by-using-a-data-
table-HP010342214.aspx
1. One-Variable Data Table
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Chapter 12 – Strategy and the Analysis of Capital Investments
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2. Two-Variable Data Table
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Chapter 12 – Strategy and the Analysis of Capital Investments
CHECK FIGURES
12-28 1. $2,530,000; 2. $600,000; 3. $430,000
12-34 1. $1,080; 2. $23,775; 3. $3,636; 4. C
12-40 a. 2.78 years; b. 3.52 years (or, 3 years and 6.24 months); c. 2.35 years (or, 2
favor of new machine, $25,300; 3.Difference in after-tax cash flow from
disposal of machines at end of year 5 (in favor of new machine), $8,000;
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$25,800.
investment); 3. $201,784; 4. 6-plus years (i.e., 6.68 years); 5. 15.91%; 6.
13.01%
12-49 1. 4.84 years; 2.average after-tax operating income/year = $79,875; 12.29%
(based on initial investment), 53.47% (based on average investment); 3.
12-53 1. PV, Overhaul option: ($402,441); Buy RoboDril option: ($359,259) (note that
these amounts are negative because they refer to COSTS); 2. 2.33 years
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Chapter 12 – Strategy and the Analysis of Capital Investments
over the original price)
12-60 No check figures
12-61 No check figures