d re Decisions Cases 737 do c for the Central Call Schew Distris for use in sporting with the real that the full-size bees on the rule we sot fully utilized. After a careful considering the boquisition of several dents to sho v e of the school district's bus routes are under Case 16-59 board has decided that it is not feasible to s Decision Problem with Sub- ses. The can shich the ston lide routes into fewer routes served by options, NPV, Ethics school would be the state maximum of 45 minutes e is for that appeach, since some students Section The plan under consideration by the board is to LD 16-1,16-2, 16-3) which see full c hhoroute that s hm e . P care part-time employees whose compensation cost the school district 18.000 per year for each o is this school In d e compensation, the n coating o 50 in contrast, the board projects that a minibus will cost cely 520.000 full size of crate and maintain. A minibus driver carns the same was controller has estimated that it will cost the district SIS 250 int size bus driver.
The school S c onti them the public, install caution signs in certain amous location, and es o its bus routes, repurchase: 250 A minibus costs $27.000, whereas a full-size bus costs $90,000 The school district uses t train its drivers preciation for all of its long-lived assets. The band has two options regarding the five full-size he First, the buses could be sold now for SI5.000 each. Second, the buses could be kept in serve for field trips and out of town athletic events and to use as backup vehicles when buses break Currently, the board charters buses from a private company for these purposes. The Schustering buses amounts to $30,000. The school district controller has estimated that this cost could cost be cut to $5,000 per year if the five buses were kept in reserve. The five full size buses have five years useful life remaining, cither as regularly scheduled bus or as reserve buses. The useful life of a new minibus is projected to be five years also Central Catskill School District uses a hurdle rate of 12 percent on all capital projects. Required: 1. Think about the decision problem faced by the board of education. What are the board's two main alternatives? 2 One of these main alternatives has two options embedded within it. What are those two options? 3 Before proceeding, check the hint given at the end of the chapter, which explains and diagrams the school board's alternatives. Suppose the board of cacatica chooses to buy the minibuses. Prepare a nel present value analysis of the two options for the five full-size buses. Should these buses he sold now or kept in reserve? From your answer to requirement (3), you know the best option for the board to choose regarding the full-size buses if the minibuses are purchased. Now you can ignore the other option. Prepare a net-present-value analysis of the school board's two mal alemanes: (a) continue to use the full- size buses on regular routes or (b) purchase the minibuses. Should the minutes be purchased? & Compute the internal rate of return on the proposed minibus acquisition What information given in this case was irrelevant to the school board's decision problem? Explain why the information was irrelevant Independent of requirements (1) through (6), suppose the NPV analysis favors keeping the full- sure buses. Michael Jeffries, the business manager for the Central Catskill School District, was prepared to recommend that the board not purchase the minibuses. Before doing so, however, Jeffres ran into a long-time friend at the racquet club. Peter Reynolds was the vice president for sales at a local automobile dealership from which the minibuses would have been purchased. Jef thes broke the bad news about his impending recommendation about the minibuses to his friend The two talked for some time about the pros and cons of the minibus alate. Finally, Reynolds Said”Michael, you and I go back a long time. I know you're not paid all that well as the school trict. Our top financial person is retiring next year. How would you like to come to work for the dealership” “That's pretty tempting. Peter. Let me think it over was Jeffries response Sure, Michael take all the time you want. In the meantime, how about rethinking that minibus decision? It's no big deal to you, and I could sure use the business.” But Peter, I told you what the figures say about that,”responded Jeffries. Come on, Michael. What are friends fort Discuss the ethical issues in this situation. What should Michael Jeffries do? Get Accounting homework help today
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