Strategic planning focuses on the long-term goals of an organization, therefore it differs from financial planning. Financial planning may also focus on long-term goals, but unlike strategic planning, financial planning focuses on short-term goals as well. It takes a strategic plan to develop a financial plan. Personnel must use a strategic plan to identify what direction the organization is going to go in its specific business industry. Once the strategic plan is implemented into the development of the organization, a financial plan can be developed to gain capital for organizational growth.
Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. a. True b. False (11-2) NPV and IRR F I Answer: b EASY [iv]. A basic rule in capital budgeting is that If a project's NPV exceeds its IRR, then the project should be accepted.
Return on Investment (ROI): It is the ratio of the net cash receipts of the project divided by the cash outlays of the project. b) Economic Feasibility: It identifies the financial benefits and costs associated with a development project. Legal and Contractual Feasibility: It assesses potential legal and contractual ramifications due to the construction of a system. Operational Feasibility: It assesses the degree to which a proposed system solves business problems or takes advantage of business opportunities. Political Feasibility: It evaluates how key stakeholders within the organization view the proposed system.
It helps us to understand the relationship between the usage of money and the value of returns it provides from a particular venture or avenue based on the time it would take for providing the return and the future value of the return. Opportunity cost is economic decisions based on a limited resources i.e time or money. Opportunity cost is defined as the next best choice available for a person. Opportunity costs are not restricted to monetary costs only. Trade-off is the form of either buying less or a lesser quality item in order to purchase more or a greater quality item.
It is standard practice for companies to discount future cash flows at a predetermined discount rate to determine whether or not the company will be profitable. However, using performance compared to hurdle rates would be somewhat challenging in that managers would have an incentive to underestimate a project’s true cost of capital in order to consistently beat their estimates. 2. What is the weighted average cost of capital for Marriott Corporation as a whole? What type of investments would you value using this WACC?
The next major item will be to calculate the cost of capital and compare that to their expected IRR, which should be larger than the cost of capital. Management then must consider what their source of financing would be (i.e. will the company finance this project internally, issue new stocks or take on more debt to fund this investment). The source of financing has strategic implications for the firm in terms of their capital structure and future cash flows and hence has to be decided carefully. 2.
Current account is the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. Exchange rate is the value of one currency for the purpose of conversion to another. Investment is when you put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit. Consumption is when you spend in order to use a resource. Firstly, if consumption falls for foreign goods then this will better the current account deficit or improve the surplus.
Two measures for evaluating a business's short-term liquidity are working capital and the current ratio. Working capital is the dollar amount of a company’s current assets less current liabilities as shown below: Working capital = Current assets - Current liabilities An excess of the current assets over the current liabilities implies that the company is able to pay its current liabilities. If the current liabilities are greater than the current assets, the company may not be able to pay its debts and continue in business. The current ratio is another means of expressing the relationship between current assets and current liabilities. The current ratio is computed by dividing current assets by current liabilities, as shown below.
B) It means that economic freedom is limited by the amount of income available to the consumer. C) It means that there is an opportunity cost when resources are used to provide "free" products. D) It indicates that products only have value because people are willing to pay for them. Answer: C 3. Opportunity cost is best defined as: A) marginal cost minus marginal benefit.
Because in order increase market share and company's revenue Company has to adapt the compatition and create the compatitive advantage by altering RE&DE And Efficient ROI Management * Future cashflows * Future revenue * Debt to equity ratio * Cost of equity/ return on equity 2. How can the Capital Asset Pricing Model be used to estimate the cost of capital for a real (not financial) investment decision? Capital Asset Pricing Model can be used to estimate the cost of capital