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Qualitative issues in investment analysis The following are some selected quotes from senior executives: CEO, Worthington Industries (a high-technology steel company): “We try to find the best technology, stay ahead of the competition, and serve the customer.... We’ll make any investment that will pay bock quickly… but if it is something that we really see as a must down the road, payback is not going to be that important.” Chairman of Amgen Inc . (a biotech company). “You cannot really run the numbers, do net present value calculations, because the uncertainties are really gigantic ... You decide on a project you want to run, and then you run the numbers [as a reality check on your assumptions]. Success in a business like this is much more dependent on tracking rather than on predicting, much more dependent on seeing results over time, tracking and adjusting and readjusting, much more dynamic much more flexible.” Chief financial officer of Merck & Co., Inc . (a pharmaceutical company):”... at the individual product level—the development of a successful new product requires on the order of $230 million in R&D, spread over more than a decade—discounted cash flow style analysis does not become a factor until development is near the point of manufacturing scale-up effort. Prior to that point, given the uncertainties associated with new product development, it would be lunacy in our business to decide that we know exactly what’s going to happen to a product once it gets our.” Explain the role of capital investment analysis for these companies.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

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Chapter
Section
Chapter 26, Problem 26.5CP
Textbook Problem

Qualitative issues in investment analysis

 The following are some selected quotes from senior executives:

CEO, Worthington Industries (a high-technology steel company): “We try to find the best technology, stay ahead of the competition, and serve the customer.... We’ll make any investment that will pay bock quickly… but if it is something that we really see as a must down the road, payback is not going to be that important.”

Chairman of Amgen Inc. (a biotech company). “You cannot really run the numbers, do net present value calculations, because the uncertainties are really gigantic ... You decide on a project you want to run, and then you run the numbers [as a reality check on your assumptions]. Success in a business like this is much more dependent on tracking rather than on predicting, much more dependent on seeing results over time, tracking and adjusting and readjusting, much more dynamic much more flexible.”

Chief financial officer of Merck & Co., Inc.(a pharmaceutical company):”... at the individual product level—the development of a successful new product requires on the order of $230 million in R&D, spread over more than a decade—discounted cash flow style analysis does not become a factor until development is near the point of manufacturing scale-up effort. Prior to that point, given the uncertainties associated with new product development, it would be lunacy in our business to decide that we know exactly what’s going to happen to a product once it gets our.”

 Explain the role of capital investment analysis for these companies.

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Chapter 26 Solutions

Accounting
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