To: The Director of Capital Investments From: Assistant Director of Capital Investments Subject: Investment Appraisal Date: December 13, 2012 Report Executive Summary A number of capital budgeting techniques were employed to determine whether the replacement of an old crane by a new ALII crane would be beneficial investment for FCL…
However, the application of the IRR technique revealed that the project has an IRR of 20.2% which is less than the rates FCL uses to discount their investments. In consideration of the rate of inflation and the fact that there seem to be no basis for using a 21 per cent and a 26 per cent rate of inflation as suggested in a meeting, the recommendation was made to invest in the project. The basis for this suggestion was that the investment would facilitate an increase in the company’s efficiency. Furthermore, it would help to improve FCL’s image and so allow the company to obtain more contracts and thus increase its revenues. Introduction Investing in a project is not a simple matter. It involves an assessment of different options. If the project relates to an asset for a new idea, this requires consideration of a number of different options which are completely new to the organization. However, if it involves a new piece of equipment to replace an existing one, it requires consideration of the equipment in use compared to the alternative. FCL is considering whether to replace an old crane which has five (5) years left to be put out of commission with a new ALII Crane. The ALII would allow the company to get additional opportunities in the market which the old crane would not be able to facilitate. It would also be able to produce items faster which mean a faster turnaround time and less production backlog for the company. Purchasing a new piece of equipment normally involves a large capital outflow and so the company’s ability to obtain funds is normally one of the main considerations. However, since financing the project is not a challenge, the focus here is not on obtaining money to finance it. Some of the things to be considered include cash flow and the ability of the company to generate enough revenue to make a profit or to break-even with this investment. Additionally, the project needs to be appraised to determine whether the investment will generate the required returns. The project will be assessed in terms of its net present value (NPV) over the ten year period, the payback period and the projects internal rate of return (IRR). Break-even analysis It is important to consider the ability of the company to generate the volume of sales necessary to break-even. The breakeven point is the point at which the company neither makes a profit nor a loss (BPP 2011; Horngren et al. 2000). This is a measure that is frequently used to measure risk in a business (Singh and Deshpande 1982). The ability to generate a profit or to break-even is not the only important issue and so the timing of FCL’s cash flow is also of paramount importance. Cash Flows A projects cash flow is very important. In order to determine the feasibility of the investment the cash flows will have to be evaluated (Emory et al. 2007; Titman et al. 2011). In fact, Popescu (2008) indicates that cash is the lifeblood of a business; therefore, it is important for the people who are placed in authority to pay special attention to cash inflows and outflows and their timing. Cash will flow inwards from sales revenue while cash will flow outwards to pay for expenses that will be incurred on the project. The focus should be on incremental cash flows that are generated from the use of the ...
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The literature (Arnold, 2007, Brealey et al, 2006) on finance and accounting would seem to indicate that the NPV methodology is one of the most comprehensive and reliable tools to use in a project appraisal. The advantages of NVP are that firstly the tool recognises the time value of money by using a discount rate (12% in this case), often WACC is used as the discount rate (Tennentt, 2008).
The outline of this article is framed in such a manner that the first section describes the theory of investment decisions for the acquisitions. This research highlights the motivation of top management of William Hill Plc behind this acquisition deal. Subsequent section emphasizes the impact of this acquisition on the capital structure of William Hill Plc.
This means, buying the inventory directly from the manufacturer and then distributing it to various outlets in the city at a margin. The business therefore plays an intermediary role by providing a channel for distributing the manufacturer’s products to the consumers.
The CEO represents a management not a board. However, the board is represented by a chairman, who is authorised to oversight the management and make certain strategic decisions about a company. Corporate governance is defined as how the companies are controlled and directed.
e maximisation of shareholder value.”3 The corporate sectors of the US and UK are typified by a comparatively huge number of ‘quoted, a liquid capital market where ownership and control rights are traded frequently, and few inter-corporate equity holdings.’4 On the contrary, Japan’s and Germany’s corporate sectors are typified by a comparatively few ‘quoted companies, an illiquid capital market where ownership and control rights are traded infrequently, and many inter-corporate shareholdings.’5 Therefore, the corporate sectors of the US and UK have ‘outsider’ corporate governance system, whereas the corporate governance systems of Japan and Germany are ‘insider’ ones.6 T
The marketing strategies and marketing plans that McDonald's Corporation uses is also looked upon at great details. The report also contains some of the new marketing techniques that McDonald's Corporation has started using in order to further strengthen their position in the market.
Numerical analyses show that over the 5-year period, Sales grew by an average of 26% annually, Cost price of goods sold by an average of 29%, and expenses by 12%. In order to know how these increases were achieved, we need to look at the growth in gross and net profits, which turn out to be -4% and 14% respectively.
United States, China, and OECD countries, particularly Canada, in order to substantiate the argument that “regardless of what form of regulation, principles or prescription, the main aim of corporate governance should be the maximisation of shareholder value.”3
3. Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, a sculpture was sold at auction for a price of $10,316,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of
Companies are exposed to various risks, and the success or failure of these businesses is determined by the efficiency with which the business managers respond to the various risks (Bender & Ward, 2012). Various risks affect the
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