Magic Timber and Steel: Investment Evaluation with Net Present Value

McCarthy, Scott (2016). Magic Timber and Steel: Investment Evaluation with Net Present Value. Ivey Publishing.

Title Magic Timber and Steel: Investment Evaluation with Net Present Value
Abstract/Summary Magic Timber and Steel (Magic) was formed in Caloundra, a community on Queensland, Australia’s Sunshine Coast. Magic’s business peaked in terms of sales revenue in about 2011 and went on to experience a steady decrease in turnover that was attributed to a number of causes, including infrastructure issues on the coast and a drop in tourism. Hoping to reinvigorate the business in early 2015, Magic’s owner believed his company required an investment in fixed assets — specifically, a large finisher that would increase capacity and reduce maintenance. Because the new machine required a significant financial investment, the owner had to use the net present value method to determine whether the purchase would add value to the firm. Learning Objective: The case has a number of objectives aimed at enhancing student learning: It provides a real-world example of a company that must make a significant investment decision. It has been designed as a repair-versus-replace decision rather than as a simple investment decision, so students gain an understanding of the practice of making a choice between two alternative investments. It requires students to think outside the strict net present value analysis and consider qualitative factors that may override the net present value decision. It requires that students communicate their final decision through a brief report, so it is necessary that they understand what the analysis is telling them.
Keyword 9B16N010
Publisher Ivey Publishing
Series Ivey Cases
Date 2016-04-21
Author McCarthy, Scott
Open Access Status Not yet assessed
Q-Index Status Provisional Code
Institutional Status Unknown
Additional Notes

Document type: Generic Document
Collection: UQ Business School Publications
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Citation counts: Google Scholar Search Google Scholar
Created: Fri, 22 Apr 2016, 10:12:53 EST by Karen Morgan on behalf of UQ Business School