StudentShare solutions
Triangle menu

Finance and Growth Strategies - Essay Example

Not dowloaded yet

Extract of sample
Finance and Growth Strategies

The results are shown in Table 1.
The internal rate of return is the cost of capital that will equate the present value of future cash flows to zero. In other words, it is the required rate of return which will yield a zero NPV. Thus, equation 1 can be modified such that NPV is replaced by 0. NPV calculations can be done manually but the process is tedious as it requires calculating the NPV by using different values of cost of capital. Another is the use of software like Microsoft Excel to generate a more accurate figure.
The decision whether the project should be accepted or not will be based on the results of the financial and strategic analyses using techniques like NPV and IRR. In using NPV as a tool, the general rule is to accept projects or investments which generates a positive NPV while reject those which yields negative NPV. The result of the NPV has a direct implication on the value of IRR relative to the required rate of return. Accordingly, a project is pursued if the IRR is equal to or higher than the required rate of return. In contrast, a project with a lower IRR than the cost of capital is turned down. It should be noted that a positive NPV is indicative of an IRR which is higher than the required rate of return.
The project considered by Fijisawa, which is ...
Accordingly, a project is pursued if the IRR is equal to or higher than the required rate of return. In contrast, a project with a lower IRR than the cost of capital is turned down. It should be noted that a positive NPV is indicative of an IRR which is higher than the required rate of return.
The project considered by Fijisawa, which is the expansion of its product line should be accepted based on the quantitative analyses using NPV and IRR techniques. The investment yields a relatively high NPV of 9,235,200. The IRR of 33.996% is very high compared to the required rate of return of 9%. Thus, Fijisawa will reap higher benefits than its capital outlay in the proposed project.
However, it should also be noted that quantitative analyses are often not enough in ascertaining whether an investment should be pursued or not. Though expansion of the product is quantitatively profitable, qualitative factors like consumer demand and others should also be taken into account.
2. Why is the capital budgeting decision such an important process Why are capital budgeting errors so costly
Capital budgeting is an extremely important aspect of a business organization's financial management. Capital budgeting is defined as the "decision making process used in the acquisition of long term physical assets (Capital Budgeting 2006)." These long term investments can be the replacement of the current machinery, the acquisition of new equipment, establishment of new plants, introduction of new products, and investment in research and development activities.
The importance of capital budgeting in a company cannot be overstated. Chatfield and Dalbor (2004) stressed that capital budgeting decisions are very much crucial in maintaining the firm's long-run financial ...Show more

Summary

The net present value (NPV) of a project represents the present value of the total cash inflows and outflows. The NPV can be calculated by discounting the cash flows according to the required rate of return. In the case of Fijisawa, NPV is computed as the present value of the future cash inflows less the initial investment…
Author : fannie05
Finance and Growth Strategies Essay essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Finance and Growth Strategies Essay"
with a personal 20% discount.
Grab the best paper

Related Essays

Islamic Banking and the Financial Crisis
According to Mavrakis (2009, pp. 2 – 5), Islamic finance has emphasised on trying to remove completely any interest involved in financial transactions. The Quran, which is the Divine revelation presented to Prophet Mohammed, who is the Prophet of Islam, expressly forbids charging of interest, or riba, and Prophet Mohammad himself emphasised on this as mentioned in the Hadith, which is the other source of Islamic law, the Shariah.
12 pages (3000 words) Essay
Growth strategies
A market penetration strategy is adopted by firms in order to raise their sales revenues without making changes to the products or services (Mba-tutorials, 2010). The strategy is often used by companies that are the early stages of its product life cycle.
1 pages (250 words) Essay
Corporate Finance II Essay
It the second largest bank in the country in terms of market capitalization. Apart from Australia, the bank has operations in New Zealand and the Pacific regions. It has operations in other continents as well and has operations in New York, London, Singapore and Hong Kong.
4 pages (1000 words) Essay
Finance Growth
Capital budgeting decisions of firms are considered to be of strategic importance not only for the growth of the company but for the economy as a whole. The capital budgeting decisions commit the economy's productive resources to its production systems and also for the firms as they strengthen and renew the resources.
10 pages (2500 words) Essay
International Finance Essay
The conversion of the US$ 12,000,000 to GB Pounds for the aggregate value of foreign exchange rate in June 2006 (@ 1 = $1.75) the value of the amount earned in pounds by the company is 6,857,143 approximately. The interest earned for the three-month period between June and October 2006 is estimated at about 1,902,857 (simple interest) totalling to 8760000 earnings to the company.
10 pages (2500 words) Essay
International Finance - Strategies
Stock holders are often called shock absorbers as they provide risk capital to the company. The stock holders cushion the claims of other stake holders. The value of any company can decline by as much as the value of equity capital. The shareholder value approach favorable strategies, by compelling managers to review business strategies based on prospective cash flows.
11 pages (2750 words) Essay
Finance and Growth Strategies
Linter is stated to have found that the existing dividend rate becomes a benchmark for the management and companies faced strong reluctance in reducing dividend from this benchmark. Therefore, if the company keeps doing well, it prefers to retain the dividend rate or hikes it to the extent possible.
11 pages (2750 words) Essay
Growth Strategies
e prime market, it also encourages teachers and parents to bring in the children since they are the primary decision makers for where the children are going to go on a visit. The museum not only partners with local organizations but also has connections with similar institutes
3 pages (750 words) Essay
Finance and Growth Strategies -MBA-
inating component of putting these methods into practice will be to see how they would work in various perspectives -- like valuing a private firm, valuing an acquisition target or valuing a distressed enterprise. In theory, the value of a business organisation’s share can be
13 pages (3250 words) Essay
Finance & Growth Strategies
ic, diversifiable, firm-specific or unique risk is associated with a particular organization and includes risks due to management, industry sector, vagaries of the market nationalisation of assets, inadequate public relations in addition to problems due to labour and research
12 pages (3000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation