Reply to two prompts in 100 words each. No sites needed, these are just thoughts on the prompts.
(Original prompt for your consideration,
To support growth strategies and combat competition with rivals, businesses seek external capital to further develop products and services in hopes to create new sales opportunities. Since capital investment often involves a huge money investment, longer time engagement and risks of uncertainties, any decision shall not be taken lightly and shall be carefully evaluated before putting money to start a long-term project. The goal is to ultimately make the right accept/reject decision. Respond to the following in a minimum of 175 words:
- Discuss criteria and techniques used to evaluate a capital project. Which criteria and techniques do you consider the most useful? As a financial manager, would you use the same criteria or evaluation techniques for any capital project? Why or why not? )
Prompt 1: When looking at capital projects there are some important things to look at and understand before starting them. The capital projects are usually a lot more in depth and more complex than normal transactions. These are when companies look to increase production and raw materials to help expand. It could also be a city that is planning on building a bridge. There are a few factors to look at and the first one is the purpose of the capital project. This is the planning part of the capital project and what you want the outcome to be. This also helps determine what needs to be done at the beginning to help get the project started. The next factor is the quality assessment, Six Sigma is a test that companies use to see how much product and materials that are being wasted. This allows companies to be more efficient throughout the project. The next is Timescales, looks at breaking down the project in time slots to determine how long each task will take. The last one and what I think is most important is the budget. This factors in how much the companies want to spend for the project, and they usually have set budgets for the raw materials, tools/machines, and labor. If I was a financial manager, I would use most of the techniques if not all of them. I believe in learning new skills and techniques can help anyone in the business world even if it is a simple one like time management.
Prompt 2: There are many techniques that are used in capital budgeting that are commonly used within companies across the world. The process capital budgeting is applied when evaluating a projects risk and long-term return. One essential technique associated with capital budgeting is the profitability index. This is also referred to as the “benefit cost ratio”, and determines the potential cash in flow to the required cash outflow. The result from this technique will display to an individual if an investment is worth the capital or if they should pursue another option. Another very crucial technique used in capital budgeting is using the net present value. Unlike many techniques, the net present value takes into account the time value of money. It is also extremely useful for managers when comparing an outlay of capital against the present value of return. As a financial manager, I would certainly use the same criteria and evaluation techniques for any capital project. The main task of a financial manger is to maintain and grow the financial health of an organization. They also have a big role in creating solutions to long-term financial goals. The objectives of financial managers directly correlate with the techniques utilized in capital budgeting. I believe that if a financial manager is using the skills associated with capital budgeting, they will do an excellent job of creating long-term wealth and maintaining the financial health of a company.