Synopsis and Objectives
1. The identification of relevant cash flows; in particular, the treatment of:
a. sunk costs
b. cash flows obtained by cannibalizing another activity within the firm
c. exploitation of excess transportation capacity
d. corporate overhead allocations
e. cash flows of unrelated projects
2. The critical assessment of a capital-investment evaluation system.
3. The treatment of conflicts of interest and other ethical dilemmas that may arise in investment decisions.
1. What changes, if any, should Lucy Morris ask Frank Greystock to make in his discounted cash flow (DCF) analysis? Why? What should Morris be prepared to say to the Transport Division, the Director of Sales, her assistant plant manager, and the analyst from the Treasury Staff?
2. How attractive is the Merseyside project? By what criteria?
3. Should Morris continue to promote the project for funding?
1. Why are the Merseyside and Rotterdam projects mutually exclusive...