Western Governors University
JET2 Task 3
A1. Capital Structure
Competition Bikes would like to explore possible growth opportunities in Canada. It is critical that the capital structure be established to ensure that an appropriate amount of funds for the expansion are identified and to ensure the future stability of the business. The capital budget will help justify the decision to invest or not invest with respect to long-term projects/purchases; these long-term financial objectives take into account lifetime cash inflows and outflows to validate returns on investments and the probability of the success. However, the amount of capital can be limited thus using appropriate budgeting concepts will help narrow down the risks. Arguably, some of the most popular methods of capital budgeting are Net Present Value (NPV), Internal Rate of Return (IRR), Discounted Cask Flow (DCF) and payback period. Businesses tend to struggle to minimizing expenses to improve the bottom line because some of these expenses are needed to ensure that certain operational goals are met, i.e., overhead and advertising. Establishing a culture of employee engagement and allowing employees to articulate their ideas can help in reducing these costs. To encourage the employees to come up with innovative ideas, a quarterly price by way of a $25.00 gift card will be given to the employee with the best idea. Another concept that has worked for many other companies is sharing the financial risks of marketing with other companies. Displaying control over the supply chain aspect of the operations by having inventory management restrictions and continuous reviews of contracts will also have a positive impact on the bottom line. Lastly, establishing a culture of financial stewardship will reflect in a cross departmental approach to cost savings as opposed to holding just the purchasing department accountable to cost saving ideas.
Capital financing always comes along with its...