Get creative and eliminate this expense. Again, Sam and Keith will need to decide what matters most to them and how determined they are to stop living paycheck-to-paycheck and start working towards future dreams and goals.
The first capital budgeting session will focus on the different criteria that the board could use to evaluate proposed capital expenditures.
ABC has a capital budgeting model to analyze all of its proposed projects. The model is also set up so that the analyst can see the effect of alternative sets of assumptions, ranging from scenarios where everything goes well to those where things to badly.
Only the directors have participated in the prior sessions, However, the president, asked you to invite the controller and the vice presidents for marketing, production, and human resources to the capital budgeting sessions. Those executives must provide critical inputs for capital budgeting decisions, and the president wants to make sure that all participants know how the data they provide will be used to analyze capital budgeting decisions.
In addition, several executives have questioned the weights that have been given to the decision criteria in actual capital budgeting decisions. For example, both the controller and the VP for marketing think that the most weight should be given to the payback, and that any project with a payback of less than 3 years should be accepted.
Similarly, the VP for production thinks that the Payback is the best method, but several directors seem more comfortable with the IRR.
You personally would like to consider only the NPV had the President not interceded and asked you to calculate all 5 criteria. Table 1 provides some simplified data on two projects, S and L.
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Both involve developing a new microprocessor, but with different ways of handling the operation. Under plan S, the project would be accelerated; hence it would have high sales in Year 1.
Under Project L, things would be handled differently. Here, ABC would operate slowly, carefully, and secretly, and customers would be locked in through long-term contracts.
Thus under L, sales and cash flows would rise over time.
Even so, new products would eventually replace this microprocessor, so L would also have a 4-year life. Moreover, sometimes the different projects are independent, meaning that both can be accepted because their cash flows are not related to one another, but at other times projects are mutually exclusive, meaning that only one of several alternative projects can be accepted.
Another issues that arose recently concerns situations in which the company can structure a project so that it will have a relative short life or, by spending more money to buy longer-lasting equipment, a longer life. Two other proposed projects, SS and LL, whose cash flows are shown in Table 2, illustrate this situation.
SS calls for the purchase of relatively inexpensive equipment that can be used for 2 years to produce a recently developed chip for the telecommunications industry. LL calls for the purchase of more expensive equipment that can be operated for 4 years.
Such projects are, by definition, mutually exclusive, and again, decisions about them have led to heated discussions. Yet another project involves rare earth metals, which ABC uses in some of its microprocessors.
Rare earth metals are quite expensive, and often in short supply.Dear Twitpic Community - thank you for all the wonderful photos you have taken over the years. We have now placed Twitpic in an archived state.
Click on a course to see details about the course on top and compare it to others. This Course List is meant to provide students with general information regarding available online courses. Archives and past articles from the Philadelphia Inquirer, Philadelphia Daily News, and vetconnexx.com Complexity characterises the behaviour of a system or model whose components interact in multiple ways and follow local rules, meaning there is no reasonable higher instruction to define the various possible interactions.. The term is generally used to characterize something with many parts where those parts interact with each other in multiple ways, culminating in a higher order of emergence.
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Click on a course to see details about the course on top and compare it to others. This Course List is meant to provide students with general information regarding available online courses.
Yahoo Lifestyle is your source for style, beauty, and wellness, including health, inspiring stories, and the latest fashion trends. Archives and past articles from the Philadelphia Inquirer, Philadelphia Daily News, and vetconnexx.com Capital budgeting techniques 1.
The internal rate of return on an investment is the return considering the cash inflows and the reinvestment of the cash inflows (at this IRR).