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You are a new cost accountant for EAON Corp. Your first project is a capital investment proposal to purchase state of the art hardware and software...
You are a new cost accountant for EAON Corp. Your first project is a capital investment proposal to purchase state of the art hardware and software for engineering's new product. The VP of engineering is excited to begin R & D on this new product. He has made it clear to you that he believes in this product and wants your proposal to be approved "with no questions asked".
You prepare your analysis using the company's cost of capital and timeline developed by the VP of engineering. When you dig deeper into the cash flow estimates, you can see much latitude has been used in predicting the cash inflows. The VP of engineering has estimated the return on investment and believes a lower discount rate should be used in the PV calculations. You are following company protocol by using the cost of capital as the discount rate.
- According to the IMA's Standards of Ethical Conduct, what are your responsibilities in this case?
- Since this is a R&D project, could you justify using a lower discount rate?
- What will you say to the VP of engineering?
- Will you stick by your original estimates or make the changes so the VP of engineering can get started on his project?