DECISION MAKING FOR BUSINESS
Table of Contents Part A: 2 1.0 Analysis of incremental cost for Fleet Ltd.: 2 2.0 Analysis of the reported profit volume: 2 3.0 Consideration of determining factors in decision making process: 2 4.0 Recommendation: 2 5.0 Executive summary: 2 Part B: 2 1 a) Derivation of cash flows for three available options (amounts in , 000): 2 1 b) Derivation of accounting rate of return for three available options (amounts in , 000): 2 1 c) Derivation of payback periods for three available options (amounts in ,000): 2 1 d) Derivation of Net Present Value for three available options (amounts in ,000): 2 1e) Derivation of internal rate of return for three available options (amounts in , 000): 2
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2.0 Analysis of the reported profit volume: | Year 1 | Year 2 | Year 3 | Cost before outsourcing per year | 335000 | 336000 | 336000 | Revenue generated per year | 0 | 0 | 30000 | Per year Profit/loss volume | -335000 | -336000 | -306000 |
| Year 1 | Year 2 | Year 3 | Cost after outsourcing per year | 632000 | 613000 | 614000 | Revenue generated per year | 0 | 0 | 40000 | Per year Profit/loss volume | -632000 | -613000 | -574000 |
Fig 2: Profit/loss in both situations
The above profit and loss analysis of the organization in both cases; before restructuring of IT department and after restructuring the IT department. However, the analysis shows that there is an increment in the loss volume of the organization during the three years after restructuring the IT department.
3.0 Consideration of determining factors in the decision making process:
The decision making process involved in the any kind of outsourcing activity needs to be based on two determining factors such as incrernental cost and incremental revenue. In the context of the present study, analysis of these two factors has been conducted without considering the influence of the inflation rate. Hence, it has been considered that the calculations conducted in the study focus on only the nominal value rather than the real value.
The decision making process involving the IT department can be outsourced to the third party in order to achieve less operational complexity. However, the
a. Calculate the expected return over the 4-year period for each of the three alternatives.
List and describe at least three factors that a firm should consider when making an outsourcing decision.
b. If you inherited $100,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 15 years?
2. St. Luke’s Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to buy and sell the securities are $2,200 and the securities will be held for three months, what required annual yield must be earned before the investment makes economic sense?
b. What would Mrs. Beach have to deposit if she were to use common stock and earned an average rate of return of 11%.
Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.
i. (1) Write out the SML equation, use it to calculate the required rate of return on each alternative, and then graph the relationship between the expected and required rates of return. (2) How do the expected rates of return compare with the required rates of return? (3) Does the fact that Collections has a negative beta coefficient make any sense? What is the implication of the negative beta? (4) What would be the market
4. Apple, whose global sales are generally dollar denominated, finds it has excess cash of $155,000,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.75% or a three-year Swiss Franc denominated deposit paying 1.60% since it expects the SF to appreciate 1.15% per annum against the dollar over the next three years. Using cash flow analysis determine the best currency option in which Apple should invest. Be sure to show your complete calculations of the annual return on each investment at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rate. Would your answer change if Apple revised its outlook for the SF to appreciate 1.2% per year? Show all calculations!!!
2. Ajax Corp. is expecting the following cash flows – $79,000, $112,000, $164,000, $84,000, and $242,000 – over the next five years. If the company’s opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)
The rational decision-making model describes a series of steps that decision makers should consider if their goal is to maximize the quality of their outcome. In other words, if you want to make sure that you make the best choice, going through the formal steps of the rational decision-making model may make sense. The following are the steps taken to come to a rational decision: 1. Identify the problem, 2. Establish decision criteria, 3. Weigh decision criteria, 4. Generate alternatives, 5. Evaluate the alternative, 6. Choose the best alternative, 7. Implement the decision, 8. Evaluate the decision.
Thinking critically and making decisions are important parts of today’s business environment. It is important to understand how the decision making process works and the steps involved. The nine steps of the decision making process are: identifying the problem, defining criteria, setting goals and objectives, evaluating the effect of the problem, identifying the causes of the problem, framing alternatives, evaluating impacts of the alternatives, making the decision, implementing the decision, and measuring the impacts. (Decision, 2007.) By using various methods and tools to assist in making important business decisions an individual can ensure the decisions they make will be as successful as possible. In this paper it
b) & c) With a same $18,000 investment, in order to earn $35,000 after 6 years, how the nominal interest rates of the First National Bank differ if coumpounded annually, semiannually, quarterly and daily?
Q2. Provide a full-page plot of the Capital Allocation Line for the case in Q1. Label the axes and locate cash, D. Equity, D. Bonds, and your optimal complete portfolio clearly on the plot. You may draw this plot by hand.
This report will discuss about the approach to rational decision making process. It discusses how an everyday problem faced by management can be tackled by using