Georges Trains Essay

1926 Words8 Pages
George's Trains Catherine Cureton Managerial Finance BUS650 Leon Daniel October 05, 2014 George's Trains George’s Train shop, owned by George Olieux, is a profitable business focusing on the sales and repair of trains, but now there are opportunities to expand his business ventures. George has asked for advice on his working capital practices, and any pitfalls that he should be aware of. He is aware of my attending an MBA Managerial Finance class; because of this, he thought that an analysis of his techniques and practices would help bring any pitfalls to light and that recommendations could be made as to how improvements would benefit him. When George acquired the business the focus was on the sale of classic Lionel trains, then the demand for Lionel trains dropped and he had to make a decision to invest in new product lines, which he did by adding a smaller train and racecars according to an analysis of market trends (Intelecom, n.d.) Capital budgeting is the process of determining whether projects are worth pursuing, however since funds available may be limited, capital budgeting techniques need to be used to determine which project would lead to the most cash flow for the business. Capital budgeting techniques such as NPV and IRR can be used to compare various investments by calculating the present value of future cash flows minus initial investment, NPV, or the expected rate of return, IRR ( (Byrd, Hickman, & McPherson, 2013). George’s capital budgeting technique consisted of observing the market trends so that his inventory could be changed to reflect the new trends. George, unfortunately, did not use any capital budgeting technique and thus was unable to identify which asset would add value to the firm, so was unable to compare product line investments and had to take the conservative alternative of adding just one racecar
Open Document