Mary Martell is a finance intern at a big corporation that was given the task to evaluate the
profitability of a new, state of the art production line. She found that the project has a negative
NPV. This is bad news for Sarah Pearl, who is the head of the manufacturing department and the
proponent of the project. Mary delivered the news to her boss, Winston Rodriguez, who called
Sarah and gave her the news: Hello Sarah this is Winston from the finance department. The new
inter confirmed what we all knew in the department: the net present value of your proposal is
negative and therefore we need to reject the project. To be honest, we already had reached that
conclusion but we wanted an outside opinion and gave Mary the task of evaluating the project.
Sorry, but the project is a no.
Sarah later sent an email to Winston: Winston, please, dont kill my project. She then asked the
following questions: Why is the NPV so important? Why dont we use the average accounting rate of return instead for this project? Are there other profitability measures that we can use? If so, can you please describe them? Why dont we use one of them to justify the purchase of the new
machine? And finally, how are all these profitability measures used across the globe?”
Answer all of Sarah’s questions in your initial post.
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