Costco Wholesale's Capital Expenditure: A Financial Analysis

The assignment content is about a financial task at Costco Wholesale, where the company needs to make a decision on replacing old plant and equipment with new ones. The task involves capital expenditure budgeting, sound financial assumptions, project implementation, non-financial impact, authorization limits, and conclusion. The project aims to replace outdated equipment to keep up with business growth, ensuring quality products and services at competitive prices.

Financial Task
FINANCIAL DECISION MAKING
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Financial Task
Task 1
Introduction
This capital expenditure is to propose the closure of capital expenses on plant property and
equipment by department manager of Costco Wholesale. The project was replacing old plant and
equipment. The purchase in replacement of sought the views of business. The major project
included capital expenditure on the warehouse's facility. Costco has expanded in its business to
do low prices. The fixed cost for purchase the equipment written in the proposal with the
financial investment described with the planned expense of the project. The company replaced
the equipment to keep pace.
The capital investment decision in Costco Whole Sale involved these procedures leading to
the financial decision are as follows:
a) Project analysis-
Objectives of the project are to replaces its equipment when it wears out. Costco can be
described as the selection of high-quality products that get sold in bulk-sized in warehouses. The
business part focused on selling merchandise at a low price. The single-step distribution policy
that permits the company to sell its stock prior it gets paid to suppliers. The warehouse
represented the greater capacity permits the company to sell its stocks quickly.
b) Capital expenditure budget-
Capital expenditure budget for the Costco Wholesale has done for the acquisition of physical
assets. The Costco wholesale cash flow for capital expenditure has ended on an annual basis on
trailing twelve months of 2018 that is $ -3045 million. The expenses have done to purchase
property, plant and equipment costing quarterly basis in May 2019 as $ -672 million. They spent
$ -3045 million in total over PPE.
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Financial Task
c) Sound Financial Assumption –
The business underpinned by sound financial assumption included NPV is $ 10,499 million.
The net present value is the difference between the discounted cash flow and the initial
expenditure of the project. The IRR is used in the selection of a project with the best profit
margins. The higher IRR chosen for the project is 8.47%. The net present value $ 10,499 at a
rate of IRR 6.24% represents the assumption of project. The payback period of this project is
5 years that it can recover the investment cost in a particular number of years. The shorter
payback period determines the more desirable investment. This payback period often ignores
the time value of money. Costco wholesale has shown the estimated revenue and the growth
of earning. The annual revenue of the project has earned $ 141576 million.
d) Project implementation-
The plan explains that the project ensures to provide the goods and services at least cost
allows the warehouses to this are the purpose of the project and it identified the associated
activities to ensure the sufficient execution has taken place in the project. The audience in the
plan included the Costco project team members, project sponsors, and the core shareholders
of the company. Project information included the business manager,
e) Non-financial impact-
The environmental and safety measures of Costco ensure the paper product. The company
continues to offer more recycled content products and packaging. Avoiding pollution by
adopting a pollinator health policy and implement the least toxic alternatives. The expansion
of product selection leads to organic products in their warehouses that support pollinator
health in return. Organic farming contributes to healthy land stewardship.
f) Authorization limits-
Costco has processes to internally escalate its customer’s complaints. The carrier license
condition represents an escalation of the issue. The Costco said that it is finding a federal
court ruling over and the financial decision making done by the department manager and the
project approved by the CEO of Australia for the replacement of old equipment. The
company approves an invoice line when they don't have authorization takes place for an
entire amount, the line will be sent for further approval. The general limits and the specific
amount limit helps the organization to approve the amount within limits authorized. This
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Financial Task
kind of clarity is given in the capital decision process of the Costco project for the
replacement of old equipment.
Conclusion
Post-implementation review-
The Costco project was successful in the deliverables; Costco wholesale has met its objective
including strong cash flow that covers the shareholder's dividend.
Costco provides quality products and services at competitive prices. The success achieved in
keeps expanding warehouses. The business policy with huge profit and a steady revenue
generation brought future success to leverage. The business lessons that can apply to the
company are:
a) Provide supplementary product and services to sustain the sales of major product and
services.
b) The physical products sell a greater quantity of products at a lower cost.
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Financial Task
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