Details of this Paper

Many businesses around the world still fail becaus...

Description

Solution


Question

Many businesses around the world still fail because their capital investment decisions are based upon a calculation on the back of an envelope and do not take any of the correct factors into account. Even larger businesses often get this wrong. This is a true sign of poor resource management. Do you agree or disagree? Discuss the alternative methods of investment appraisal and describe the limitations of these to help justify your arguments. How do you think that capital budgeting decisions should ideally be made by different types of organisations? The solution length for this IQ is 500?750 words. Remember to cite and reference examples from the attached and journal articles. Strictly NO-PLAGRISIM,Thought of sharing some infor can be used for this solutions. Please how you can use this into solutions. Please don't just copy this and put into solutions. This info would defiantly provide some additional points to your solutions. Accounting rate of return (ARR) Payback period (PP) Net present value (NPV) Why NPV is better Internal rate of return (IRR) When undertaking an investment appraisal, there are several practical points that we should bear in mind: ?Past costs. As with all decisions, we should take account only of relevant costs in our analysis. This means that only costs that vary with the decisions should be considered. Thus, all past costs should be ignored as they cannot vary with the decision. In some cases, a business may incur costs (such as development costs and market research costs) before the evaluation of an opportunity to launch a new product. As those costs have already been incurred, they should be disregarded, even though the amounts may be substantial. Costs that have already been committed but not yet paid should also be disregarded. Where a business has entered into a binding contract to incur a particular cost, it becomes in effect a past cost even though payment may not be due until some point in the future. ?Common future costs. It is not only past costs that do not vary with the decision; some future costs may also be the same. For example, the cost of raw materials may not vary with the decision whether to invest in a new piece of manufacturing plant or to continue to use existing plant. ?Opportunity costs. Opportunity costs arising from benefits forgone must be taken into account. Thus, for example, when considering a decision concerning whether or not to continue to use a machine already owned by the business, the realisable value of the machine might be an important opportunity cost. Many surveys have been conducted in the UK into the methods of investment appraisal used by businesses. They have shown the following features: ?Businesses tend to use more than one method to assess each investment decision, increasingly so over time. ?Flexibility. A decision to close the factory is probably irreversible. If the factory continues, however, there may be a chance that the prospects for the factory will brighten in the future. ?Creditworthiness of sub-lessee. The business should investigate the creditworthiness of the sub-lessee. Failure to receive the expected sublease payments would make the closure option far less attractive. ?Accuracy of forecasts. The forecasts made by the business should be examined carefully. Inaccuracies in the forecasts or any underlying assumptions may change the expected outcomes. (d)The NPV of the decision to continue operations rather than close immediately is positive. Hence, shareholders would be better off if the directors took this course of action. The factory should therefore continue in operation rather than close down. This decision is likely to be welcomed by employees and would allow the business to maintain its flexibility. Investment appraisal in practice Many surveys have been conducted in the UK into the methods of investment appraisal used by businesses. They have shown the following features: Businesses tend to use more than one method to assess each ?Businesses tend to use more than one method to assess each investment decision, increasingly so over time. ?The discounting methods (NPV and IRR) have become increasingly popular over time, with these two becoming the most popular in recent years. ?ARR and PP continue to be popular despite their theoretical shortcomings and the rise in popularity of the discounting methods. ?Larger businesses tend to use the discounting methods and to use more than one method in respect of each decision.,Hi, I have clearly mention that "Strictly NO-PLAGRISIM". When I look at solutions it has 32% similarity index. Can you please correct it and provide me with 1 or 2 hrs time. My dead line is today. Attached plagiarism report.,hope you will given it to me in 2 hrs time.

 

Paper#5600 | Written in 18-Jul-2015

Price : $25
SiteLock