Student #: 1480510
Introduction
Capital budgeting is the most important management tool that enables managers of the organization to select the investment option that yields comprehensive cash flows and rate of return. For managers availability of capital whether in form of debt or equity is very limited and thus it become imperative for them to invest their limited and most important resource in perfect option that could prove to beneficial for the organization in the long run (Hickman et al, 2013). However, while using capital budgeting tool managers must understand its quantitative and qualitative considerations that are discussed below.
Independent project If an organization decides to invest in an independent
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Have Romanian operations to global standards
3. At the time Romania joins EU, it will be able to supply it members with the given product with zero tariffs
Question 2: What do you see as alternative approaches to resolving Deck’s dilemma? Use your financial model and analyses (plural) to compare and contrast these alternatives.
a. Buy out the JV completely then invest $8.5 Million
i. Buying out JV will cost $100,00 of capital investment in the year 2006. It will nearly double cash flow to deck.
b. Invest $500,000 and let JV run independent
i. This is and existing successful model , therefore with minimal investment we can continue service the customer.
c. Sell JV to the partner while create a sourcing contact
i. By creating a sourcing contract with the JV partner, one will minimize the risk of financial lose. Example: If there is a change in Renaults production goals. ii. If you sell the JV to the partner, then they will be asble to keeo up the quality as well as the production goals.
Question 3: What is your final recommendation – and why?
a. I recommend that we invest $500,000 and let JV run independentlyas it was. Reason being is because 1. It is a minimul investment of only $500,000 vs. an investment of $8.5 million to create a gold standard of manufacturing facility and have the clients order volume not meet projections. In other words “why fix what’s not broken”.
References
The foreign partner can also become a competitor by selling its production in places where the parental company is already in.
3. Comment on the practice of dual sourcing when part of the requirement is produced internally. Relate this to the advantages and disadvantages of a 100 percent requirements contract. (i.e. develop both the pros and cons of dual sources and the pros and cons of requirements contracts).
Capital Budgeting encourages managers to accurately manage and control their capital expenditure. By providing powerful reporting and analysis, managers can take control of their budgets.
eBay will have a 49% stake in the new joint venture while Tom Online will have 51% ownership. Critically assess both companies, decisions on their respective percentage of stake (explain advantages and disadvantages of JV international strategy)
4. What offer would you make in an effort to gain the support of the Robertson family and the great majority of the stockholders, while improving the long-term trend of Monmouth’s earnings per share over the next five years?
The management team at Savage Corporation is evaluating two alternative capital investment opportunities. The first alternative, modernizing the company’s current machinery, costs $45,000. Management estimates the modernization project will reduce annual net cash outflows by $12,500 per year for the next five years. The second alternative, purchasing a new machine, costs $56,500. The new machine is expected to have a five-year useful life and a $4,000 salvage value.
* Joint ventures: the corporation and outsourced entity’s taking responsibility for distribution; corporate investment in the supply chain expected
· * From the scenario, take a position for or against TFC’s decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two (2) capital budgeting techniques (e.g., NPV, IRR, Payback Period, etc.) that you used to arrive at your decision.
|c. |VOR should engage in a joint venture with a firm that has access to restricted markets. |
Virtually all general managers face capital-budgeting decisions in the course of their careers. Among the most common of these is the either/or choice about a capital investment. The following describes some general guidelines to orient the decision-maker in these situations.
Capital budgeting is a long-term schedule that decides what investment projects to choose. When an option is selected, a company decides where and how to obtain the funds to support its investment and a way of determining the capital structure. A company should make sure it has access to working capital to maintain it operations daily. If this is not available, the company will not be able to maintain it daily operation until
Christ like life experience during any financial capital planning. The most important part during the business financial planning is outweighing risk and return on business investments. Managers should remember to be transparent not hiding any financial exceptions that could alter or change the outcome of the financial statements. Building a professional group that is consistent year by year requires enforcing professional financing standards by put into effect a detail transparent investment and expenditure planning process. The establishment of clear guidelines of budget and projected benchmarks must be discussed before, during and after budget development. It is mentioned that capital budgeting “is a systematic method of allocating financial, physical, and human resources to achieve strategic goals. Companies develop budgets in order to monitor progress toward their goals, help control spending, and predict cash flow and profit” (Inc., 2000). The expertise for a successful final capital budget is a combination of Gods teachings, individual’s expertise and businesses strategic goals.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
In Clarke’s et al (2004) article “Inside the real world of capital allocation”, Jeff Costello the vice president and CFO of Memorial Health System Inc. emphasizes on segregating capital budget into several categories which he labeled as a “strategic capital”. Hence, of all his suggestions, the concept
This article mainly discusses the cost of capital, the required return necessary to make a capital budgeting project worthwhile. Cost of capital includes the cost of debt and the cost of equity. Theorist conclude that the cost of capital to the owners of a firm is simply the rate of interest on bonds.