BUS 5110 Managerial Accounting Unit 6 Portfolio Assignment PDF

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Frequently companies will make a long-term investment decision that goes against the capital budgeting analysis quantitative factors such as NPV, IRR, payback period, and ARR. These nonfinancial factors are called qualitative factors[CITATION Hei12 \p 617 \l 1033 ]. While quantitative factors are im...

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Frequently companies will make a long-term investment decision that goes against the capital budgeting analysis quantitative factors such as NPV, IRR, payback period, and ARR. These nonfinancial factors are called qualitative factors[CITATION Hei12 \p 617 \l 1033 ]. While quantitative factors are important for decision making, qualitative factors may outweigh the quantitative factors in making a decision [CITATION Hei12 \p 618 \l 1033 ]. The first example of a qualitative factor is strategic importance. While working at Emerson Network Power, the company purchased Knurr, a company that makes server racks. The product brought little revenue in to the company comparatively to the traditional power and air conditioning units. The racks had a large amount of direct materials and labor, required purchasing of new equipment to manufacture the sheet metal, and a factory expansion to accommodate production lines and warehousing. The quantitative financial factors all pointed to not moving forward with the purchase of Knurr. However, Emerson strategically wanted to be able to provide a “soup to nuts” portfolio of products for data centers. The server rack product lines were strategically important for the company to offer a one stop shop for designing a data center. Additionally, the racks would have the Emerson logo on every unit, lending to “free” advertising as its focus customer base, data center engineers, walked through the aisles of the data center. The second example of a qualitative factor is being an Industry leader in innovation. In my last role with Nortek, a company that historically made air handlers for large buildings, invested in indirect evaporative cooling systems using new technology in their heat exchanger by utilizing a water permeable membrane designed by Gore along with The University of Saskatchewan. The company’s planning pointed to not having a positive cash flow for three years and a return rate well below their acceptable threshold. However, the company saw a market shift to products that

would lower the cost of ownership, with their design using half the amount of electricity and water when compared to best in class competitors. The analysis pointed to this new product and its innovative technology being the largest revenue source for the company within seven years. Even though all quantitative factors told them otherwise, they went against the data and moved forward with launching the new product. Lastly, qualitative factor is social benefit. The example above with Nortek can also be utilized to illustrate this qualitative factor. As was mentioned, their new cooling system had large savings on utilities and cost of ownership. It also needs no harsh chemicals for cleaning maintenance, making this product environmentally sound investment for its customers. It was estimated that a new data center in Singapore would save enough electricity, when compared to the best in class competitor, to power a small city of 80,000 residents. It became apparent to the leadership team that the social benefits of offering an efficient, environmentally friendly product was a qualitative factor to consider when deciding to ignore the quantitative financial factors stating otherwise. Word count: 501

References Heisinger, K., & Hoyle, J. B. (2012). Accounting for Managers. (1.0). Creative Commons by-nc-sa 3.0. Retrieved from http://lardbucket.org...