Managerial Economics in Coca Cola

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THEORATICAL REVIEW: Project manger is expected to select the the project which is benificiary to the organization. Cost benefit anlysis is done by the project manger. It is highly unlikely that project manger select the the project whose cost exceeds its benefits. Benefits can be measured either finacial or non-finacial. The puposuse of idetifying the financial benefits is called copital budgeting, which may be defined as decision making process by which organization evaluate the projects that include the purchase of major fixed assets such as machinary , building, and equipments. So there are two main catagories of selection of project, 1-Financial model 2-Non- financila model FINANCIAL METHODS: In financial maethod we determine…show more content…
For hiddena and trial method we need one positive value and one negative value. And formula of hidden and trial method is given below: A%+C/C-D(B%-A%) A%= Lower rate of retun B%= |Higher rate of return C= Positive value D= Negative value ACCEPTANCE CRITERIA: * If internal rate of return is greater than required rate of then we select the project. * And if IRR is smaller than required rate of retun then we reject the project. 4- PROFITABILITY INDEX: The fourth numeric method of selecting the project is profitability index method. The profitability index or cost-benefit ratio, of project is the the ratio of the present value of future net cash flows to the initial cash outflows. It can expressed as follows, PI= NPV/ INITIAL CASH OUT FLOW Profitability index method although is quite simple method but it is dependent on net present value method. Profitability Index (PI) also known Desirability Factor signifies present value of inflow per rupee of outflow. It therefore helps us to compare projects involving different amount of initial investments. SELECTION CRITERION: * If the profitability index is greater than one then we accept the project. And if profitability index is less than one then we reject the project proposal. NON FINANCIAL MODEL Non financial model discribes a wider range if issues ranging from market share value to environmental issues. In these methods all the issues are
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