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Evaluate capital budgeting projects using appropriate analytical tools

Scenario:
The Sparklin Automotive Company (SAC) has been in business since 1930. It began business in the United States supplying spark plugs to automotive manufacturers (OEM, the original equipment market) and the automotive aftermarket.

SAC has introduced a new spark plug manufacturing process in the United States that produces a higher quality spark plug guaranteed to last 100,000 miles. The introduction of this spark plug has been very successful in the United States.

In addition to these types of projects, your responsibilities include creating and analyzing the monthly performance of each plant and consolidating the results into a set of financial statements footnoted with explanations.

Assignment:
Write a memo to the general manager explaining your analysis for the specialty spark plug project.Include the following information:

Present the NPV and IRR calculated for the purchase of new equipment. Explain the effect of a sales volume increase on the total fixed costs, unit fixed costs, total variable cost, and unit variable cost.

Discuss the effect of a volume increase in sales, a price increase in sales, and a cost decrease on the net operating income.
Calculate the payback period for the new equipment project.

Make a recommendation about the manufacture of the specialty spark plug and purchase of new equipment.

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