...TYPES OF CAPITAL INVESTMENT DECISION Keputusan investasi modal (capital investment decision) berkaitan dengan proses perencanaan, penetapan tujuan dan prioritas, pegaturan pendanaan, serta penggunaan kriteria tertentu untuk memilih aktiva jangka panjang. Karena keputusan investasi modal menempatkan sejumlah besar sumber daya pada resiko jangka panjang dan mempengaruhi perkembangan perusahaan secara simultan di masa depan, hal itu merupakan salah satu keputusan terpenting yang dibuat manajer. Proses pengambilan keputusan investasi modal sering disebut penganggaran modal (capital budgeting). Ada dua jenis proyek penganggaran modal : proyek independen dan proyek saling eksklusif. Proyek independen (independent project) adalah proyek yang jika diterima atau ditolak, tidak akan mempengaruhi arus kas proyek lainnya. Sedangkan, proyek saling eksklusif (mutually exclusive project) adalah proyek – proyek yang apabila diterima akan menghalangi penerimaan proyek lain. Keputusan investasi modal sering berkaitan dengan masalah investasi dalam aktiva modal jangka panjang. Kecuali tanah, aktiva selalu disusurkan selama umur manfaatnya dan investasi dipakai ketika aktiva itu digunakan. Investasi modal yang baik umumnya akan menerima kembali modal awal sepanjang umurnya dan menghasilkan pengembalian yang cukup atas investasi awal pada saat yang sama. Jadi, salah satu tugas manajer adalah memutuskan apakah suatu investasi modal akan menghasilkan kembali sumber daya awalnya atau tidak dan...
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...I am evaluating a project of Ashraf Textile Ltd. assuming the cost of Taka 2,250,000 has a five year life and has no salvage value and depreciation is straight line to zero. The required return is 17% and the tax rate is 34% sales are projected at 1500 units per year. Price per unit is Tk. 7,500 variable cost per unit is Tk. 4,500 and fixed costs are 6,000,000 per year. Scenario analysis: The company is thinking the unit sales, price, variable cost and fixed cost projections given here are accurate within 5 percent. Now we have to calculate the upper and lower bounds for those projections, base-case NPV, best case NPV and Worst case NPV. | |Base |Lower bound |Upper bound | |Unit sales |1,500 |1,425 |1,575 | |Price per unit |7,500 |7,125 |7,875 | |Variable cost per unit |4,500 |4,275 |4,725 | |Fixed cost per year |600,000 |570,000 |630,000 | Depreciation is 450,000 |Scenario |Unit sales |Unit price |Unit VC | |Sales |11...
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...Running head: LONG-TERM INVESTMENT DECISIONS 1 Long-Term Investment Decisions Juanita Bates Professor: Mohammad Sumadi ECO 550 Managerial Economics and Globalization December 5, 2015 Long-Term Investment Decisions 2 Abstract Microwave food have taken place of the traditional family-styled dining in today’s fast-paced society. There are a variety of microwavable food for consumers to choice from. With today’s health conscious society, the microwave food industry have adapted to meet the preferences of the consumers by producing low calorie frozen microwavable foods. With the growth of this market, it is important that companies in this market have a good marketing plan along with a good strategic business plan. An important long-term decision a business can make is whether or not to invest. The process of evaluating the sustainability of long-term investments with a view of distributing financial resources to investments that are profitable is known as capital budgeting. Capital budgeting focuses on investment costs related to the benefits generated during their economic life. This is one of the most important decisions for a company because it helps with the appraisal and selection of investments that are most feasible. It also helps with the decision of accepting or rejecting investment proposals. Evaluating...
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...Session 1 Assignments: 1. Why is the “productivity paradox” important in IT investment decision-making? Productivity paradox will allow companies to justify their investment in IT by showing what was spent on IT and what was the resulting productivity. This will allow companies to make better IT investment as productivity is the fundamental economic measure of a technology's contribution. 2. How does “sequential decisions” add complexity to a particular decision situation? A sequence could have many levels of decisions, each with multiple and conflicting criteria. This adds complexity to the sequential decision making as it is difficulut to follow a squence when the whole process is so dynamic. 1. How would you describe three IT investment decision-making methodologies? a. Analytical hierarchy process Calculate the overall score of decision-makers’ pair wise comparisons.The Analytic Hierarchy Process (AHP) is a structured technique for organizing and analyzing complex decisions. Based on mathematics and psychology, it was developed by Thomas L. Saaty in the 1970s and has been extensively studied and refined since then. Rather than prescribing a "correct" decision, the AHP helps decision makers find one that best suits their goal and their understanding of the problem. It provides a comprehensive and rational framework for structuring a decision problem, for representing and quantifying its elements, for relating those elements to overall goals, and...
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...Long-term Investment Decisions Introduction Investment is the process of creating or purchasing possessions with the aim of gaining benefits in future. Therefore, making long-term objectives or decisions is necessary for any business that relates to investment. For the organization to yield returns and gain good performance in the market it must make good use of the financial resources available to acquire buildings, machines, or other assets that will enable smooth operation within the organization for a long period. A planning that the management needs to consider involves accessing many issues that face the business, and finally decide which issue to invest on depending on its urgency in the business. The issues that are encountered in the business vary depending on attitude, circumstances to risk, and particular age. Therefore, the management must take time to think about the issues before making decisions to avoid possibly costly mistakes. A Plan Used By Managers When Selecting Pricing Strategies In Order To Attain Inelastic In Their Products. It’s very crucial for managers to price their product in order to attain the potential or current customers in the market. As a result, the decision made by the management will determine the future progress or success of the business. For that reason, major strategies like employing pricing, safeguarding inelasticity in products, and many other strategies need to be established to ensure that products are retained by customers...
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...Corporate Finance II Lecture 04 Shama-e Zaheer Risk and Return Risk is the variability of returns from any asset. The greater the risk, the greater the required return from the asset. Therefore, in order to find the required return from any asset we need to know its risk and match that risk to another asset (or portfolio of assets) with a known return and use that as the opportunity cost of capital for the risky asset. Required Return, or, ri = Risk-free Rate (RFR) + Risk Premium (RP) Measuring Risk Calculate the standard deviation of returns to measure the variability, hence the risk of an asset. Possible Return Probability of Occurrence (Project A) Probability of Occurrence (Project B) -0.1 0.05 0.01 -0.02 0.1 0.03 0.04 0.2 0.16 0.09 0.3 0.6 0.14 0.2 0.16 0.2 0.1 0.03 0.28 0.05 0.01 Returns could also take continuous values, in which case, a normal distribution of returns may be assumed and probabilities associated with range of values may be calculated. To compare the riskiness of alternatives of different expected returns, use Coefficient of Variation instead of standard deviation. Inv A Inv B Expected Return, R 0.08 0.24 Standard Deviation, σ 0.06 0.08 Coefficient of Variation, σ/R 0.75 0.33 Investors are generally risk-averse. Therefore, they would need to be compensated for risk through risk premia. But remember that diversification reduces risk. Therefore, investors have to be compensated for the risk they cannot diversify...
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...Running head: CAPITAL BUDGETING Risk Analysis on Investment Decision Risk Analysis on Investment Decision Silicon Arts, Incorporated (SAI) is a manufacturer of circuits that are used in the manufacture of electronic equipment items. During their initial years in operation, there was an increase in the industry followed by a 40% decline. In order to remain competitive and stay profitable, SAI controlled expenses. Current trends indicate the industry may be on the rise again. SAI wants to develop some new capital investment projects that are in line with their goals: increase their market share, and keep pace with new technology (University of Phoenix, 2007). Future Scenarios The first task in the simulation was to examine probable future scenarios that could potentially affect SAI cash flow with two projects, Dig-image and W-Comm. Part of SAI’s plans is their desire to earn $54 million in their first year by selling 400,000 units, however they first need to determine their working capital. “Working capital rises over the early years of the project as expansion occurs. However, all working capital is assumed to be recovered at the end, a common assumption in capital budgeting” (Ross, Westerfield, & Jaffey, 2005, p. 183). SAI is expecting growth will be 20% in the first three years and then decrease 10% annually in years 4 and 5. SAI is expecting increasing competition, decreasing prices, and a short lifespan of the technology that could be obsolete before...
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...FACTORS INFLUENCING PENSION MANAGERS’ INVESTMENT DECISION A CASE STUDY OF ZANZIBAR SOCIAL SECURITY FUND (Z.S.S.F) By: ABDULAZIZ M. RAMIA REG. NO: ZU/MBA/0001/12 FACULTY OF BUSINESS ADMINISTRATION PROPOSED SUPERVISOR: DR. MASOUD A Concept Paper Submitted in Partial Fulfillment of the Requirement for the Degree of Master of Business Administration in Finance (MBA- Finance) of Zanzibar University 1.0 INTRODUCTION AND BACKGROUND OF THE STUDY 1.1 Introduction In most economies value is presently obtained through a market process where supply meets demand. Here is where finance and financial markets come into play. They provide the tools to optimize the allocation of resources through time and space and to manage risk. Finance is by nature quantitative like economics but it is subject to a large level of risk. It is the measurement of risk and the implementation of decision-making processes based on risk that makes finance a quantitative science and not simply accounting. Pension is a benefit promised to an employee by an employer during employment and is payable on leaving or retiring from the employer’s service. In the developed countries, pension plans are established and managed through creation of trust. In many cases, the fund is invested by the employer and pension is payable from the recurrent revenue of the employer. In general the main purpose of pension is to provide people with an income when they are no longer earning a regular income from employment...
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...Normative Decision Process of an Investment Gift for a Nanotechnology Center As the President of the State University of New York Institute of Technology (SUNY IT), the university has been willed $20 million with no will or codicil related restrictions as to the direction that the capital can be invested. The university has chosen that the best use of the $20 million is to invest into a Nanotechnology Center, which will be set to begin construction in the Spring of 2013. The decision process on how to invest the $20 million in the Nanotechnology Center will be outline by a normative approach. The normative decision process includes developing an idea for the investment in the Nanotechnology Center based upon an optimal decision. The optimal decision is that SUNY IT should invest in a Nanotechnology Center. In developing the normative decision process for investing the $20 million the paper will look at other possible options, design and implementation, technology strategy, technology policy, and tight appropriability regimes (Burgelman, Christensen, & Wheelwright, 2009). The Nanotechnology Center at SUNY IT will help meet the needs of the New York state initiative in the greater Utica area in bringing in nanotechnology jobs as part of Nano Utica (SUNY IT, 2014). Comparing the Nanotechnology Center to Other Investment Options As New York’s public polytechnic university, SUNY IT must meet the growing demand for technical degree fields and the necessary facilities...
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...manufacturing company that holds a patent on Hair Grow, the world´s most effective drug for restoring hair. Your job is to analyze the pricing and investment decisions facing the firm. Your marketing group estimates that Hair Grow has the following demand curve: P= 101 - .00002 Q 1- Your marginal cost for producing a Hair Grow pill is $1. What is the profit maximizing price and quantity? What is your profit? Profit maximization MR=MC MC (Q) = 101 - .00002 Q 1 = 101 – 2 (.00002) Q 1 = 101 - .00004Q 101 - .00004Q = 1 -.00004Q = 1 -101 Q= -100 / -.00004 Q= 2,500,000 units P= 101 - .00002 Q P= 101 - .00002 (2,500,000) P= 101 – 50 P= $ 51 optimal price 51 -1 = $50 La empresa genera una utilidad con $50 por unidad para una utilidad total de $125,000,000 (2,500,000 unidades * $50) 2- Suppose that your production facility can only produce 1,000,000 pills. What is your optimal price and quantity given the production constraint? What are your profits? P=101 – 0.00002Q P= 101 – 0.00002 (1,000,000) P= 101 – 20 P = $81 81-1= 80 La empresa genera una utilidad con $80 por unidad para una utilidad total de $80,000,000 (1,000,000 unidades * $80) 3- Suppose that you could increase the capacity of your plant to 3,000,000 pills within a 2 year period for a cost of $30,000,000. Should you undertake the investment (for simplicity, assume you can borrow the funds for the expansion at a 0 percent interest rate)? P=101 – 0.00002Q P= 101 – 0.00002 (3,000,000) ...
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...Foreign Investment Decision Proposal Paper To Buy This material Click below link http://www.uoptutors.com/FIN-403/FIN-403-Week-5-Learning-Team-Assignment-Direct-Foreign-Investment-Decision-Proposal-Paper FIN 403 Week 5 Learning Team Assignment Direct Foreign Investment Decision Proposal Paper Prepare a 5,250- to 7,000-word proposal in which you select the optimal financing and investment strategy for your scenario. Include the following information in your proposal: Identify which country you chose and why. Identify foreign exchange rate data. Use foreign exchange and cost of capital data to determine appropriate capital sources. Conduct a sensitivity analysis, based on the following questions: What if funds are blocked? How does this affect the parent organization? What if the subsidiary provided funds? How does the source of capital affect the subsidiary and parent organization? What sources of capital would minimize the cost of capital to the subsidiary? What happens if the country you chose provides incentives to invest? Now that your organization is profitable, the country is taking incentives back. How do you determine the residual value at the end of the project life? How is the value of an organization determined from the following perspectives? Expiration of project life Friendly or unfriendly buyout Economic decision to change locations Nationalization or confiscation of organization Identify available alternative investment and financing decisions, and...
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...Personal Heritage Assessment Question: What are the Personal heritage assessment and its usefulness? In this paper, the writer will focus on the usefulness of applying a heritage assessment in evaluating the needs of person as a whole, three different family’s opinions on health maintenance, health protection and health restoration. Also this paper will identify health traditions as regards to cultural heritage of the writer, then how the three families interviewed in this paper follow their customs and how important their traditions and practices are to them. Heritage can be described as the degree of which one’s lifestyle reflects his/her tribal culture. Cultural heritage exist in a continuum and a person can possess values both the traditional –living within the norms of the traditional culture and modern-living outside norms of the tradition. Specter (2004) The usefulness of the applying heritage assessment in evaluating of the needs of the whole person is outlined as follows; EFFECTIVE CARE:- With the knowledge and application of heritage assessment patient will derive satisfaction and positive outcome in health will be achieved. RESPECTFUL CARE: - Taking into consideration the values, preferences, n the expressed needs of the patient are met. CULTURAL AND LINGUISTIC COMPETENCE:- By applying heritage assessment certain behaviors, attitudes, and policies that are seen in a system of multidisciplinary which enable them to work in cross-cultural...
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...INVESTMENT DECISION AND CASH FLOWS A positive net present value (NPV) is a direct estimate of value creation for shareholders and is an operational way of carrying through on the strategy of trying to maximize shareholder wealth. To calculate NPV, however we need to estimate the cash costs and benefits of any decision at hand. In this note we discuss the evaluation of investment proposals. Cash Flows: Basic Concepts The cash flows that we will use in our analysis are incremental after-tax cash flows. The incremental-cash-flow rule is that the cash flows relevant in analyzing an investment opportunity are those after-tax cash flows and only those after-tax cash flows directly attributable to the investment. The words incremental, after-tax and cash are critical. The term cash calls attention to the fact that we are interested in cash flow and not accounting profits. Ultimately, financial transactions must be carried out with cash, not profits, so we look to cash as the source of value. As we will see, we are interested in all cash flows affected by a decision under evaluation, no matter how those cash flows are classified for accounting purposes. The term after-tax emphasizes that we are able to keep the cash only after payment of taxes. The word incremental is important because in deciding whether to do something, or whether to pick alternative A or alternative B, differences in outcomes are of interest. What changes as a result of the decision? If a firm replaces a piece of...
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...Long-Term Investment Decisions Government Regulations Government regulation borders within the mandated needs in the economy to strike a balance between the market activities and social welfare of the people. The role of government in the market has been seen as one that is indispensable in an economy where this balance is needful. Contrary to this argument, it has also been observed that government involvement in the market economy can to a large extent lead to sub-optimal results. It is agreeable however, that government intervention guarantee the social welfare and production of public goods. These are aspects that are not possible to achieve through the market system (Smith, 2012). The main reasons for government regulation are to provide public goods such as security and public health and lighting. The production of certain necessary goods in the economy cannot be achieved through the market system owing to lack of a proper measure for payment. Some public necessary goods have a feature of non-excludability. It is impossible to provide these goods excluding those who have not paid from using them. The government regulation mechanism comes in to collectively provide the goods and create a payment mechanism that market cannot sustain (Eidenmüller, 2011). Redistribution of income in the economy is also a function achieved through government intervention. The national role of the government is to ensure welfare to all and, where there is an imbalance, the government...
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...Outline a plan that managers in the low-calories, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products response to a change in price less elastic. Provide a rationale for your response. To outline a plan that managers in the low-calories, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products response to a change in price less elastic would detail a pricing strategy that would have no impact on the way consumers perceive and buy these products. Generally we see such demand only in situations in which the good or services are indispensable and the consumers cannot do without those, but not in the case of the microwaveable food products. The demand function for low calorie microwaveable food largely depends on the price of the product, its relative (substitute) product, advertisement overheads and consumer income. From the demand function and the elasticity considered, it is established that the market for the low calorie microwaveable foodstuff fit in to a market of monopolistic competitive manner. A monopolistic competitive is distinguished by a reasonable number of buyers and sellers. As a result people can change to another brand if a specific brand charges a soaring price. However monopolistic competitive suppliers carry out product differentiation. Profit (NP) = Total Revenue (TR) Total Cost...
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