ORGANIZATIONAL PERFORMANCE ANALYSIS AND RECOMMENDATIONS—PART 3 AND EXECUTIVE SUMMARY
For this final Assignment, you will continue in your role as consultant to the executive team of a midsize copper smelting company in northern Canada. As a reminder, here is a summary of the team’s current situation and need:Due to some recent changes to the local environmental air quality laws, the company’s large coal-fueled smelting furnace is now operating out of compliance due to high levels of pollutants in the exhaust gases. The regulatory agency has given the company 12 months to demonstrate compliance, after which it will be fined $1,000 per day until the operations meet the regulation. The company has two alternatives. The first alternative is to install air scrubbers to reduce the output pollutant levels. The second alternative is to convert the smelting furnace from coal to natural gas. Both alternatives will meet the current regulatory requirements, but there is a slight concern that the air scrubber solution may not meet future regulatory restrictions. The executive team wants you to perform a financial performance analysis on both alternatives using several different capital budgeting methodologies. The team also is seeking guidance on nonfinancial considerations regarding the company’s ethical and social responsibilities related to this decision.
Last week, for Part 2 of your report, you provided company leadership with guidance related to the company’s ethical responsibilities related to this decision. This week, you will conclude the report with Part 3, which addresses the company’s social change responsibilities related to the decision. You will also prepare an executive summary in which you will synthesize your findings and recommendations for the company leaders.
As a reminder, you will continue adding on to the report you have been developing during the last 2 weeks. In addition to the requirements that follow, be sure to incorporate references to appropriate academic sources, such as those found in this week’s Learning Resources or those in the Walden Library.
RESOURCES
Be sure to review the Learning Resources before completing this activity.Click the weekly resources link to access the resources.
WEEKLY RESOURCES
To prepare for this Assignment:
Return to the Module 3 Assignment Template you utilized in Week 6 and Week 7. With the research and readings from Week 6 through Week 8 in mind, incorporate any feedback, as needed, into your report as you complete Part 3 and the executive summary.
BY DAY 7
Submityour completed business report to the executive team. For this final submission, incorporate Part 3 (approximately 3–4 pages in length, excluding title page and references) and the executive summary (page 1 of your report) as follows:
PART 3: THE TRIPLE BOTTOM LINE AND POSITIVE SOCIAL CHANGE
For this part of your report, you will explore aspects of the triple bottom line and positive social change that the company should consider when choosing an investment. In addition to the financial information provided, your client wants to be sure that the investment is working toward the greater good for its stakeholders. You will provide that information by showing them, through the triple bottom line, that the company can capture profits and demonstrate protection to people and the planet. You also will show the executive team how this concept can lead to having its decision promote the good of all people through positive social change. To complete this part, address the following:
Define the triple bottom line and analyze its importance within an organization. Give examples of how the organization might address each of the three Ps.
Module 3 Assignment:
Organizational Performance Analysis and Recommendations
Prepared by: Annet Castillo
Date: 02/25/2024
Walden University
WMBA 6050: Accounting for Management Decisions
Page 1 of 10
Part 1: The Financial Performance Analysis
Air Scrubbers
Net Present Value Using Excel to determine PV cash flow
NPV = Initial Cost + PV of Cash Flow
Initial investment
PV of Annual net cash flow for 15 years
Net present value
Present Value
(1,350,000)
2,185,256
$
835,256
$
PV(rate,value1,[Value 2])
Payback Period = Initial Investment / Net Annual Cash Flow
6.00
Internal Rate of Return
Using Excel =IRR(M6:M21) use the IRR worksheet
14%
Average Rate of Return = Ave Net Income / Ave Book Value of investment
20.00%
Furnace Fuel Change
Net Present Value Using Excel to determine PV cash flow
NPV = Initial Cost + PV of Cash Flow
Initial investment
PV of Annual net cash flow for 15 years
Net present value
=PV(rate,value1,[value2])
Present Value
$
(1,385,000)
3,059,358
$
1,674,358
Payback Period = Initial Investment / Net Annual Cash Flow
4.40
Internal Rate of Return
Using Excel =IRR(M26:M41) use the IRR worksheet
21%
Average Rate of Return = Ave Net Income / Ave Book Value of investment
21.68%
Page 2 of 10
Period
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Air Scrubbers
IRR Worksheet
Cash Flow
$
(1,350,000)
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
225,000
Furnance Fuel Change
IRR Worksheet
Period
Cash Flow
0 $
(1,385,000)
1
315000
2
315000
3
315000
4
315000
5
315000
6
315000
7
315000
8
315000
9
315000
10
315000
11
315000
12
315000
13
315000
14
315000
15
315000
Page 3 of 10
Financial Metrics analysis
In assessing investment alternatives, such as Air Scrubbers and Furnace Fuel Change,
financial analysis plays a critical role in determining the potential return on investment.
Analyzing metrics such as Net Present Value (NPV), Accounting Rate of Return (ARR), Internal
Rate of Return (IRR), and Payback Period empowers executives to make well-informed
decisions regarding investment options and their potential returns. NPV, a fundamental metric,
determines the current value of future cash inflows, considering the concept of the time value of
money. It provides insight into the project’s profitability and its ability to generate value over
time. Both projects exhibit positive NPVs, implying potential profitability. Air Scrubbers show
an NPV of $835,256, while Furnace Fuel Change demonstrates a higher NPV of $1,674,358 over
the 15-year project duration. This indicates that both projects are expected to generate positive
returns, but Furnace Fuel Change appears more financially attractive with its significantly higher
NPV.
Accounting Rate of Return (ARR), provides insights into the average rate of return
relative to the initial investment. Air Scrubbers yield an ARR of 20.00%, while Furnace Fuel
Change boasts a superior ARR of 21.68%. This suggests that Furnace Fuel Change generates
higher average profits compared to Air Scrubbers, enhancing its financial appeal. Internal Rate
of Return (IRR) is another crucial metric, representing the percentage return on investment,
assuming reinvestment of cash flows at the same rate. Air Scrubbers show a respectable IRR of
14%, indicating a moderate return on investment. However, Furnace Fuel Change outperforms
with a higher IRR of 21%, suggesting a more lucrative investment opportunity with greater
potential for returns. As Magni (2010) indicates, a higher IRR indicates that Furnace Fuel
Page 4 of 10
Change offers a more lucrative return on investment, making it a more enticing option for
potential investors. The Payback Period provides insight into the time required to recover the
initial investment (Boardman et al., 2006). Air Scrubbers requires 6 years to recover the initial
investment, indicating a relatively longer timeframe for payback. In contrast, Furnace Fuel
Change achieves this milestone in a swifter timeframe of 4.40 years, demonstrating a more
efficient use of capital and quicker return on investment. Thus, this is an indication that Furnace
Fuel Change would recoup the initial investment at a faster rate, contributing to its appeal in
terms of liquidity and risk mitigation.
Recommendations to the Executive Team
Upon comprehensive analysis of NPV, ARR, IRR, and Payback Period, Furnace Fuel
Change emerges as the more favorable investment option. Furnace Fuel Change exhibits superior
financial performance across multiple metrics presenting a more compelling investment
opportunity. Its higher NPV, ARR, IRR, and shorter payback period collectively underscore its
stronger financial performance compared to Air Scrubbers. However, it is imperative to take into
account additional factors including environmental ramifications, operational viability,
adherence to regulations, and fluctuations in the market landscape when making informed
decisions. These aspects contribute significantly to the overall assessment of investment
alternatives. Additionally, Aven (2016) asserts that conducting sensitivity analyses to assess
various scenarios and risk factors can provide additional insights into the resilience and
robustness of each investment option. By carefully weighing these factors and conducting a
thorough evaluation, stakeholders can make well-informed decisions aligned with their strategic
objectives and risk tolerance levels.
Page 5 of 10
Part 2: Ethical Responsibility
Importance of Ethics in Managerial Accounting.
Managerial accounting is essential for decision-making within organizations, guiding
strategic choices based on financial data. However, ethical considerations play an equal role in
maintaining integrity and credibility in financial reporting practices. Managerial accountants are
entrusted with the critical task of collecting, analyzing, and interpreting financial data to
facilitate informed decision-making processes within organizations. Ethical considerations play a
pivotal role in fostering trust among both internal stakeholders, such as employees, and external
stakeholders, including investors, regulators, and the public (Smith & Kouchaki, 2021). Any
deviation from ethical standards erodes this trust and damages the organization’s reputation.
For the smelting company, ethical dilemmas arise regarding potential solutions to the
regulatory problem. Overhearing discussions of covering up the issue through false or
misleading data reporting underscores the importance of ethical behavior. Falsifying data not
only violates ethical standards but also jeopardizes the company’s compliance with laws and
regulations (Contributor, 2020). This could lead to severe legal repercussions, tarnishing the
company’s reputation and eroding stakeholder trust. Thus, ethical behavior in managerial
accounting is essential for ensuring compliance with laws, regulations, and accounting standards.
Upholding ethical principles enables managerial accountants to accurately report financial
information mitigating the risk of fraudulent practices that could lead to legal repercussions.
Thus, the smelting company’s ethical conduct would involve transparently reporting the
environmental impact of the smelting process and adhering to regulatory requirements.
Page 6 of 10
Ethical conduct also guides decision-making processes and resource allocation, allowing
accountants to prioritize investments that align with the organization’s values and long-term
sustainability objectives. In the case of the smelting company, ethical decision-making would
involve considering not only financial metrics but also the environmental impact of investment
alternatives and their long-term implications for the community and stakeholders. Additionally,
ethical behavior contributes to corporate social responsibility (CSR) efforts by ensuring
transparent reporting of social and environmental performance metrics (Alkhadra et al., 2023).
Managerial accountants play a pivotal role in assessing the financial impact of CSR initiatives
and promoting sustainable business practices. By upholding ethical accounting standards,
organizations can enhance their reputation as responsible corporate citizens committed to ethical
conduct and long-term value creation.
The Impact of Ethics on Organizational Dynamics
Ethics, whether practiced in a commendable or detrimental manner, holds a profound
influence on the overall functioning and reputation of an organization. When upheld effectively,
ethical behavior fosters trust, transparency, and integrity, thus contributing positively to the
organization’s culture, operations, and relationships with stakeholders (Goulet, 2018).
Conversely, unethical conduct can lead to erosion of trust, legal repercussions, and damage to the
organization’s reputation, with far-reaching consequences for stakeholders such as employees,
customers, suppliers, and the broader community. An organization that upholds high ethical
standards fosters a culture of justice, respect, and trust at work. Higher levels of motivation and a
sense of value among employees result in increased engagement, loyalty, and morale. Contrary,
Goulet (2018) indicates that a culture of unethical behavior breeds distrust, resentment, and
Page 7 of 10
disengagement among employees, resulting in decreased productivity, increased turnover, and a
toxic work environment.
Ethics profoundly impact customer perceptions and relationships. Organizations known
for ethical conduct garner trust and loyalty from customers, leading to enhanced brand reputation
and customer retention. According to Goulet (2018), instances of unethical behavior, such as
misleading advertising or product safety issues, can tarnish the organization’s reputation and
erode customer trust, resulting in loss of market share, decreased sales, and long-term damage to
brand equity. Ethical behavior fosters mutually beneficial relationships with suppliers and
business partners based on trust, fairness, and transparency. Organizations that uphold ethical
procurement practices and business standards are more likely to maintain long-term partnerships.
Unethical conduct, such as contract breaches or supplier exploitation, can lead to strained
relationships, supply chain disruptions, and reputational damage for all parties involved.
Additionally, the broader community and society at large are impacted by the ethical
decisions of organizations. Ethical organizations contribute positively to their communities
through corporate social responsibility initiatives, environmental stewardship, and philanthropic
endeavors (Smith & Kouchaki, 2021). These actions enhance the organization’s reputation,
attract top talent, and foster goodwill among stakeholders. However, unethical behavior, such as
environmental pollution or labor exploitation, can lead to regulatory scrutiny, legal sanctions,
and reputational harm, negatively impacting the organization’s social license to operate and its
relationships with regulators, policymakers, and the public.
Recommendations
Page 8 of 10
To ensure high ethical responsibility permeates all levels of the organization, the
implementation of comprehensive ethics training and education programs is essential. These
initiatives would serve to instill a deep understanding of ethical principles, reinforce adherence to
the company’s code of conduct, and provide practical guidance on ethical decision-making across
various business contexts (Smith & Kouchaki, 2021). Through targeted training sessions
encompassing case studies, role-playing exercises, and interactive discussions, employees at
every level would gain insight into the significance of ethical behavior within their respective
roles. Such programs would not only emphasize the importance of ethical conduct but also equip
employees with the necessary tools to navigate complex ethical dilemmas effectively.
Moreover, the company’s dedication to developing an accountable and transparent culture
would be strengthened by the implementation of an ethical hotline and reporting procedures. The
company can show its commitment to swiftly and impartially addressing ethical shortcomings by
giving staff members a private forum to express concerns and report instances of unethical
activity. This initiative would encourage employees to speak up without fear facilitating the early
detection and resolution of ethical issues. Furthermore, integrating ethical considerations into
performance evaluations and reward systems can incentivize and reinforce ethical behavior
among employees. By aligning individual and team goals with ethical standards and values, the
organization signals its commitment to rewarding and recognizing employees who demonstrate
exemplary ethical conduct (Alkhadra et al., 2023). This approach not only encourages ethical
decision-making but also serves to embed ethical responsibility as a core competency within the
organization’s performance management framework. Additionally, fostering open dialogue and
engagement between management and employees on ethical matters cultivates a sense of shared
responsibility and accountability for upholding ethical standards across the organization.
Page 9 of 10
References
Alkhadra, W.A., Khawaldeh, S. & Aldehayyat, J. (2023), “Relationship of ethical leadership,
organizational culture, corporate social responsibility, and organizational performance: a
test of two mediation models”, International Journal of Ethics and Systems, Vol. 39 No.
4, pp. 737-760. https://doi.org/10.1108/IJOES-05-2022-0092
Aven, T. (2016). Risk assessment and risk management: Review of recent advances on their
foundation. European Journal of Operational Research, 253(1), 1–13.
https://doi.org/10.1016/j.ejor.2015.12.023
Boardman, C. M., Reinhart, W. J., & Celec, S. E. (2006). The role of the payback period in the
theory and application of duration to capital budgeting. Journal of Business Finance
& Accounting, 9(4), 511–522. https://doi.org/10.1111/j.1468-5957.1982.tb01012.x
Contributor, C. (2020, October 15). About ethics in managerial accounting. Small Business Chron.com. https://smallbusiness.chron.com/ethics-managerial-accounting-3737.html
Goulet, B.P. (2018). Ethics and Organizational Performance. In: Farazmand, A. (eds) Global
Encyclopedia of Public Administration, Public Policy, and Governance. Springer, Cham.
https://doi.org/10.1007/978-3-319-20928-9_902
Magni, C. A. (2010). Average internal rate of return and investment decisions: A new
perspective. The Engineering Economist, 55(2), 150–180.
https://doi.org/10.1080/00137911003791856
Smith, I. H., & Kouchaki, M. (2021, October 19). Building an ethical company. Harvard
Business Review. https://hbr.org/2021/11/building-an-ethical-company
Page 10 of 10
Module 3 Assignment:
Organizational Performance Analysis and Recommendations
Prepared by: Replace this text with your name.
Date: Replace this text with the submission date.
Walden University
WMBA 6050: Accounting for Management Decisions
Page 1 of 6
Executive Summary
Replace this text with your executive summary.
Page 2 of 6
Part 1: The Financial Performance Analysis
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
Insert your calculations of the NPV, payback, IRR, and ARR from Excel. Add or remove
headings as necessary.
For information on inserting data from Excel into Word, refer to the following:
Microsoft. (n.d.). Insert a chart from an Excel spreadsheet into Word.
https://support.microsoft.com/en-us/office/insert-a-chart-from-an-excel-spreadsheetinto-word-0b4d40a5-3544-4dcd-b28f-ba82a9b9f1e1
[Sub-Heading]
Replace or remove this text. Add or remove headings as necessary.
Page 3 of 6
Part 2: Ethical Responsibility
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[Heading]
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[Sub-Heading]
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Page 4 of 6
Part 3: The Triple Bottom Line and Positive Social Change
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
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[Sub-Heading]
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Page 5 of 6
References
[Please delete this note before submitting your Assignment. For more information about
formatting your reference list, please visit the following site:
https://academicguides.waldenu.edu/writingcenter/apa/references.]
Include appropriately formatted references to support your Assignment. Refer to the
Assignment guidelines for further information on the requirements.
Page 6 of 6
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