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South Philippines Adventist College: Submitted By: Torres, Arly Kurt Besana, Keyla Mae

The document analyzes the financial decision facing Le Jeune Upholstery Company regarding a machine that is nearing obsolescence. The company is considering three alternatives: renewing the old machine for $178,000, replacing it with Machine X for $213,800, or acquiring a new Machine Z for $45,000. Based on the operating cash flows projected over 5 years and terminal cash flows, replacing with Machine X has the highest net present value, so the recommendation is to select that alternative.

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Arly Kurt Torres
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57 views3 pages

South Philippines Adventist College: Submitted By: Torres, Arly Kurt Besana, Keyla Mae

The document analyzes the financial decision facing Le Jeune Upholstery Company regarding a machine that is nearing obsolescence. The company is considering three alternatives: renewing the old machine for $178,000, replacing it with Machine X for $213,800, or acquiring a new Machine Z for $45,000. Based on the operating cash flows projected over 5 years and terminal cash flows, replacing with Machine X has the highest net present value, so the recommendation is to select that alternative.

Uploaded by

Arly Kurt Torres
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SOUTH PHILIPPINES ADVENTIST COLLEGE

LE JEUNE UPHOLSTERY COMPANY, DESCISION MAKING IN STATE OF


OBSELESCENE; CASE STUDY

FINANCIAL MANAGEMENT

AE 315

Submitted by:  

Torres, Arly Kurt

Besana, Keyla Mae

Submitted to: 
Teves, Mark Jason B. 

JULY 15, 2021


Le Jeune: Decision Making for State of Obsolescence

Point of View

 Chris Borg, the CFO of Le Jeune, Upholstery Company

Statement of the Problem:

 Should the Company renew the old asset or to replace or reacquire a new asset?

Statement of Objectives:

 Assess and the opportunities available to Le Jeune, Upholstery Company


 To make a good economic decision that will be more beneficial for the company

Initial Investment

INITIAL INVESTMENT AMOUNT


ALTERNATIVE 1: RENEW MACHINE 178,000
ALTERNATIVE 2: REPLACE WITH MACHINE X 213,800
ACQUIRE MACHINE Z 45,000

Operating cash flow and Incremental Cash flow of Alternative 1, 2, 3 from Year 1 to 5

OPERATING CASH FLOW INCREMENTAL CASH FLOW


YEAR ENP ALT.1 ALT.2 ALT.3 ALT.1 ALT.2 ALT.3
1 170,000 244,578 288,915 67,920 74,579 118,915 -102,080
2 255,000 354,416 407,558 95,839 99,416 152,558 -155,584
3 340,000 463,880 466,939 109,808 123,880 126,932 -230,192
4 425,000 581,825 526,439 123,808 156,825 101,439 -301,192
5 544,000 701,825 664,479 156,288 157,827 120,479 -387,712

Terminal Cash Flow


TERMINAL CASH FLOW AMOUNT
Alternative 1: Renew Machine 13,600
Alternative 2: Replace with Machine X 42,500
Alternative 2: Reacquire Machine Z 10,000

Recommendations;

We recommend alternative 2 or replace with machine X because of its high NVP value among
other alternatives.

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