ACC301DB3

Judgment Case 6-5 - Replacement Decision - LO3 LO7 Requirement 1

Hughes Corporation employs a machine to manufacture its output . It has identified a replacement but wishes to carefully consider the effect on various aspects of the business if it continues to use the existing machine compared with the effect if it replaces it with the new machine The importance of Capital Budgeting cannot be underemphasized as a replacement decision can impact Hughes Corporation for many years , and so it must be carefully planned . A bad decision can have a significant effect on

the firm 's future operations . The timing of the decision is important as capital budgeting projects may take years to implement Firms should plan accordingly , failing which they may find that the capital budgeting decision is timed too late , and prove to be costly with respect to competition . Capital budgeting decisions made too early can also cause problems because generally capital budgeting projects are large investments , thus early decisions may generate unnecessary costs for the firm . Hughes Corporation would like to assess whether it should replace the machine now with the new one or defer the decision

Requirement 2

The idea for a capital budgeting project , whether generated by customers , employees , suppliers , should be based on the requirements and experiences of the corporation , and of these groups . For example , a sales representative might often receive customer feedback that there is a need for the product to have particular characteristics that the firm 's existing product does not have . The...