Whitefish inc. operates a fleet of 15 fishing boats in the North Atlantic Ocean.

Whitefish inc. operates a fleet of 15 fishing boats in the North Atlantic Ocean. fishing has been good in the last few years as has the market for product so the firm can sell all the fish it can catch. Charlie Bass the vice president for operations has worked up a capital budgeting proposal for the acquisition of new boats. Each boat is viewed as an individual project identical to the others and shows an IRR of 22%. The firms cost of capital has been correctly calculated at 14% before the retained earnings break and 15% after that point. Charlie argues that the capital budgeting figures show that the firm should acquire as many new boats as it possibly can financing them with whatever means it finds available. You are Whitefishs CFO. Support or criticize Charlies position. How should the appropriate number of new boats be determined? Does acquiring a large number of new boats present any problems or risks that arent immediately apparent from the financial figures?

You can leave a response, or trackback from your own site.
error: Content is protected !!