1. First, The president considers qualitative factors that are not incorporated into the IRR computation, which leads to acceptance of the X project and rejection of the Y project. In other words, the company’s proposal means that considering qualitative factors can serve as an important factor when considering them. Second, the president thinks that the Y division over-calculated the cash inflow and, on the other hand, less the cash outflow. Y needs to document whether past estimates are relatively accurate. If this is done, more accurate analysis will help manage their cash inflows and outflows. Also, the president spent his first ten years with X, so his affection for it would be much higher than that of Y. Even considering this, Y’s manager should give the boss a good impression by changing the elements described above appropriately and effectively.
2. In this situation, there seems to be some information that is missing. The information provided does seem that there would be some bias towards division X. We do not know information the internal rate of return contains and how accurate it is. This is also probably not the only factor that goes into the acceptance of the capital budgeting project. I would advise the manager of division Y to not make such allegations public without any proof because, if someone hears these statements then, they will be likely to look at Watts and division X in an ill way. The manager of division Y could provide more factors that explain why division Y is better suited for a project instead of division X. If all else fails, then the manager should speak with Watts to learn what is needed to become more acceptable in the future. Later, if it becomes more obvious then, the manager should look elsewhere for a workplace.