Bentley Ceramics has experienced a substantial increase in demand. The current equipment and staff of Bentley Ceramics cannot meet this demand, and will require capital expansion to meet both current and future obligations. Premiere Business Consulting (PBC) has been engaged by Bentley Ceramics to identify and remedy their current structural problems as well as address potential financing concerns. This report documents PCB's analysis, conclusions, and recommendations for Bentley Ceramics. The purchase of two gas kilns and four electric kilns will allow Bentley Ceramics to meet current and future demand. The use of both gas and electric kilns will not only increase quality and variety of ceramics, but will allow for customized batch size as well. In order to maximize the artistic skill of Julian Bentley, PBC recommends hiring two interns from the College of William and Mary to help with the non-artistic aspects of the business.
[...] Second, PBC determined that Bentley Ceramics could repay the cost of the equipment loan within the first two years of the fifteen year useful life of the equipment. Third, modified internal rate of return (MIRR) is calculated at and an internal rate of return (IRR) is determined to be 88%. Both the IRR and MIRR represent the rate of return of the project compared to the rate of return that could be earned by alternative investments. In this case Bentley Ceramics' cost of capital is 21% so the MIRR and IRR are well above the cost of capital for this equipment purchase. [...]
[...] Chapter Introduction 1 Chapter Statement of Problem 1 Chapter Identification of Alternatives 2 Equipment Purchasing Alternatives 2 Financing Alternatives 2 Other Alternatives 2 Chapter Evaluation of Alternatives 3 Purchase three new gas kilns 3 Purchase twelve new electric kilns 4 Purchase a combination of gas and electric kilns 5 Financing Alternatives 5 Financing equipment through local bank 5 Operating lease 5 Capital lease 6 Other Alternatives 6 Chapter Recommendations 7 Chapter Expectations 8 Chapter Summary 10 References Appendix Chapter Introduction Bentley Ceramics is sole proprietorship owned by Julian Bentley. [...]
[...] Chapter Identification of Alternatives There are several alternatives available to Bentley Ceramics to solve current capacity problems. Each of these solutions has both pros and cons that need to be evaluated prior to implementation. Equipment Purchasing Alternatives Purchase three new gas kilns Purchase twelve new electric kilns Purchase a combination of gas and electric kilns Financing Alternatives Financing equipment through local bank Lease new equipment o Lease new equipment through a capital lease o Lease new equipment through operating lease Other Alternatives Implementation of design templates and hiring of interns Chapter Evaluation of Alternatives Before addressing the cost and benefits of each of the following alternatives, it is important to establish a common basis for each evaluation. [...]
[...] The majority of capital leases carry substantial prepayment penalties, thus Bentley Ceramics would be obligated to the full term and interest expense of the lease. Other Alternatives Bentley Ceramics can also consider the use of design templates or molds of popular designs to minimize the cost and time of hand designing each unit. While this alternative saves time and some of costs for Bentley Ceramics, it should be used with discretion. The use of molds for design reduces the exclusivity of the brand. [...]
[...] With regard to financing, PBC recommends that Bentley Ceramics finance the purchase of two gas kilns and four electric kilns through the local Williamsburg bank. The lower than market interest rate and 100% financing available through the local bank is superior to terms offered by other lenders or leasing companies. With equipment and financing in place Bentley ceramics will still need to increase staff to capitalize on the expanded production capacity. In order to maximize the artistic skill of Julian Bentley, PBC recommends the hiring of two interns from the College of William and Mary. [...]
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