Case Study : Johnson Controls, Inc. Essay

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.

president and chief financial officer has a salary of $909,500 and total compensation is $11,302,829 (FTSE Russell, 2017). Joaquin Duato, the executive vice president’s salary is $875,000 and a total compensation of $10,104,529 (FTSE Russell, 2017). And executive vice president and chief human resources officer, Peter Fasolo has a salary of $534,769 and a total compensation of $3,621,281 (FTSE Russell, 2017).

In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2,162,760. We determined that the discount rate of 15% was out dated and insufficient. To calculate a more accurate NPV for the project, we decided to use the rate of 9.87% that we computed. Using this number we got the NPV of $577,069. With the NPV of $577,069 our conclusion is to accept this

Once future cash flows are forecast conservatively and cautiously and an appropriate discount rate is chosen, next the present value will be calculated. Managers should acknowledge that, in valuing an innovation project, there are not estimating the value of something that exists today but making a prediction of the performance and goodness that the new product or service will generate in the future. Leading companies treat the valuation and selection of innovation projects not as a single decision but as an incentive for the prognostication process, in which the prediction of value develops and improves over time. In a bit of ways it is comparable to weather forecasting, where the best way to predict the weather in an hour 's time is to go outside and look and the best way for a few days ahead is using computer

Johnson Controls, is my current company and they acquired us (Detcon) towards the end of 2016. Before Johnson Controls, we were part of Tyco Inc. which acquired us at the end of 2015. Detcon was found by brothers, Dan and James Alpha in 1983 in their garage. In 1985, they started their commercial sales and it took off from there. Until 2011, Detcon only manufactured fixed gas monitors. In 2011, the company acquired two additional gas detection companies, GMI and Oldham. After the acquisition, we sold and repaired a variety of equipment that included portable gas detection (GMI), fixed gas detection (Oldham and Detcon). At this time, our brand began to grow with the ability to sell to more companies in more

The viability of projects is evaluated based on a comparison of its internal rate of return (FIRR and EIRR) to the financial or economic opportunity cost of capital. Alternatively, the project is considered to be viable when the Net Present Value (NPV) is positive, using the selected EOCC or FOCC as discount rate. Sensitivity analysis focuses analyzing the effects of changes in key variables on the project’s IRR or NPV, the two most widely used measures of project worth.

Standard techniques of quantitative investment appraisal in business today are the payback time method, the internal rate of return (IRR) and the Net Present Value (NPV), Accounting Rate of Return (ARR) rule accompanied with a sensitivity analysis and often also scenarios. The central argument is that the standard techniques fail to capture management’s flexibility to adapt and revise later decisions in response to market development. Below are the few merits and demerits of these Investment appraisal techniques.

According to Ben-Horin and Kroll (2017, p. 6), “NPV ranks investment projects by their amount of value creation.” In addition, NPV is considered the predominant measure to be used when considering the acceptance or rejection of potential projects as it is a “direct measure of the value of the project to shareholders” (Ehrhardt and Brigham,

INVESTMENT APPRAISAL The nature of investment decisions and the appraisal process Non-discounted cash flow techniques Discounted cash flow techniques Allowing for inflation and taxation in DCF Adjusting for risk and uncertainty in investment appraisal Specific investment decisions (lease or buy; asset replacement, capital rationing)

Useful where technology changes rapidly or there are other sources of risk as it asks the question how quickly do we get the money back?

INVESTMENT DECISION AND CASH FLOWS A positive net present value (NPV) is a direct estimate of value creation for shareholders and is an operational way of carrying through on the strategy of trying to maximize shareholder wealth. To calculate NPV, however we need to estimate the cash costs and benefits of any decision at hand. In this note we discuss the evaluation of investment proposals.

There are two common ways, which are: NPV and Profitability index, are used to evaluate and review investments, through calculating the capital expenditure to select the profitable project.

The five investment appraisal techniques used for this report are the Accounting Rate of Return (ARR), payback period, Net Present Value (NPV), discounted payback and Internal Rate of Return (IRR). The results of the five investment appraisal techniques may not be similar because of differences in their approaches and calculations. However, it is advantageous to use more than one investment appraisal technique and understand the importance and problems of each method before making a final decision.

Net Present Value (NPV): It uses cost of capital and discount rate to determine the present value of the project.

The factors that affect investments are based on the priorities of the stakeholders and decision makers, which are either based on long term growth or short term profit. In most cases firms tend to invest over long term (Adler R.W. 2000). There are many formal methods that are used in Investment appraisal and many of which are criticized as being traditional;