Johnson Controls Capital Investments – Assignment Two
ACC 560 – Managerial Accounting
Founded in 1885 in Milwaukee, Wisconsin by Warren Johnson, Johnson Controls began by making the first electric room thermostat. (125, n.d.) Fast-forwarding to today, the company operates in over 150 countries and employees over 170,000 people. The company also operates in four main segments, each in its own sector and industry. The building efficiency division of Johnson Controls provides equipment for heating, air conditioning, refrigeration, and security systems. The global workplace solutions division is responsible for providing facilities, corporate real estate, as well as energy management solutions to many of its business partners and clients. The power solutions division manufactures regular lead-acid batteries for automobiles, as well as the new hybrid batteries for electric vehicles. Lastly, the automotive experience division of Johnson Controls provides automotive seating, overhead systems, floor consoles, door panels, and instrument panels for automotive manufacturers. (Leader, n.d.)
While there are a few different methodologies that Johnson Controls could put into place in order to supplement the traditional methods for evaluating the capital investments of the company, the methodology that I see as most fitting would be the discounted payback method. The discounted payback method is the length of time required to recover the initial cash outflow from the discounted future cash inflows. (Discounted, n.d.) Unlike some of the other methodologies out there, the discounted payback method does in fact take into account the time value of money. In simpler terms, the discounted payback method provides users with the length of time (usually in years), that it would take to reach a breakeven point from the initial amount of capital invested.
For many people, the discounted payback method is a relatively easy way to understand and evaluate investment risk....