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Capital Investment and Budget Planning
Capital and Investment Budget Planning
For all governments, long-term expenses are something they must deal with. This is to ensure that the continuing needs of an area are met through facilitating economic growth and addressing the demands of the general public. To fully understand this process requires examining the capital and investment budget planning process. This will be accomplished by comparing the city of Toronto's budget presentation with the 8 step method and carefully analyzing this model. Together, these elements will highlight how administrators are able to account for spending on large projects and ensure that there is enough funding to meet these needs every single year.
Compare Toronto's capital budget presentation with the eight step model
For the most part, the city of Toronto is following the eight step model to highlight the long-term needs of the area between 2009 and 2018. Some…
2009 to 2013 Recommended Capital Budget and Plan. (2008). City of Toronto. Retrieved from: http://www.toronto.ca/budget2009/pdf/2009_capital_EC_presentation_public.pdf
Capital Assets. (n.d.)
Brooks, R. (2009). Financial Management and Core Concepts. Boston, MA: Prentice Hall.
General Electric Company is one of the most acknowledged companies across the world. The company's center of operations is situated in Boston. In particular, the manufacturing company has various business operations in different segments. These include oil and gas, power and water, aviation and transportation. This shows the company's versatility in manufacturing as it ranges from the engineering industry to automotive industry. The company's prevailing revenue generated lies in the range of $140.39 billion as of the 2015 fiscal year. In the 2012 financial year, the company was ranked as the fourth biggest firm in the world. General Electric Company manufactures aircraft engines, locomotives and other transportation apparatus, lighting, electric control gear, generators and turbines, and medical imaging paraphernalia. In addition, the company is the owner of GE Capital, which provides commercial finance, commercial aircraft leasing, real estate, and financial services for the energy sector (Hoovers, 2016). Since its establishment…
Capital Investment isks
Capital investments: Cloud computing for public universities
Cloud computing has many advantages over traditional, hardware-bound computing. "In the current financial crisis and being challenged by growing needs, universities are facing problems in providing necessary information technology (IT) support for educational, research and development activities" (Mircea & Andreescu 2011:1). Public universities have been particularly hard-hit financially because of their reliance upon state funding. States are struggling to provide the bare minimum of services for residents, while facing reduced revenue from state income taxes, sales taxes, and other sources of funding. Switching to cloud computing could be both financially and technologically advantageous for residents. Also at "the moment universities are confronting with a dramatic increase of costs in higher education, more than the inflation rate" because of increased enrollment that is unlikely to abate, even after the financial crisis becomes less serious (Golden, 2010). The decrease of universities' budgets…
Mircea, Marinela & Anca Ioana Andreescu. (2011). Using cloud computing in higher
education: A strategy to improve agility in the current financial crisis.
Thus, the paper provides the following recommendations on the strategies that the company will use to prepare its 3-year financial plan to achieve its corporate objectives.
First, Aztec needs to rely more on the share capital as source of fund than raising fund from the bank loan. Loan capital is the fund borrowed from the bank while the share capital represents the funds raised by selling shares to the public. Typically, share capital should be clearly a preferred option of raising fund because the company only liable to pay dividends for such funds which is only between 2 and 3% of the market value of the equity per annum. On the other hand, loan capital is a borrowed fund that has a fixed interest which a company should pay no matter its financial conditions.
Aztec would enjoy several advantages from raising fund from the share capital. First, the company will…
Afonso, a. (2009). Determinants in using of capital investment appraisal methods: Evidence from the field. Department of Production and Systems University of Minho.
Barclays (2012).UK Hospitality and Leisure Sector outlook Third quarter 2012. Corporate Banking, Barclays Bank PLC.
Businessweek (2012). Compass Group Plc (CPG:London). Bloomberg. UK.
Clarke, P.J. (2002). Account Infor for Managers. Cengage Learning EMEA.
Global Capital Investment
There is some proof that capital through financial globalization may raise the growth rate in developing countries. "Traditionally, fixed exchange rates have been considered to require more reserves than flexible rates. Fluctuations in the balance of payments would be taken care of by compensatory exchange rate adjustments under a flexible regime, whereas they involve temporary swings in reserve holdings under a fixed regime. With flexible rates, fundamental disequilibria would be more promptly corrected, because the correct changes in price signals to exporters and importers would occur more quickly than under fixed rates held constant for too long." (Cline, 1976)
Developing countries that open up their capital markets may also accumulate very high levels of unsustainably debt so it is important that if the money comes they still control the citizens' consumption rates. "For example, there is evidence that international investors do engage in herding and momentum trading…
Cline, William R. (1976). International Monetary Reform and the Developing Countries. New York: The Brookings Institution.
IMF. (2000). How Can The Poorest Countries Catch Up? External Publications: Chapter 4 PDF. Retrieved on May 9, 2005, from IMF Web at http://www.imf.org/external/pubs/ft/weo/2000/01/pdf/chapter4.pdf
The Old World Bank
Emerging markets are riskier than established ones, and because of that Johnson Controls should make some adjustments to the method by which it evaluates capital investments when dealing in emerging markets. The 2013 Outlook and Strategic Review does not explain how risk is evaluated at Johnson, but the company would normally subject its capital investments to analysis that includes sensitivity analysis, and NPV with sensitivity analysis.
For emerging markets, the hurdle rate would be higher in order to account for the higher degree of risk. China represents over 50% of Johnson's business in Asia, so the company has a significant amount of knowledge about the risk conditions in the Chinese market. Thus, the company can set a hurdle rate that is appropriate to the Chinese market using available information. The company can also estimate the growth rate of China for the coming years, and the risk of inflation.…
Bloomberg. (2013). China's inflation accelerates as chill boosts food prices. Bloomberg News. Retrieved March 1, 2013 from http://www.bloomberg.com/news/2013-01-11/china-dec-inflation-2-5-exceeding-economists-est-.html
Saltelli, A., Tarantola, S., Campolongo, F. & Ratto, M. (2004) Sensitivity Analysis in practice: A guide to assessing scientific models. John Wiley & Sons.
Schall, L., Sundem, G. & Geijsbeek, W. (1978). Journal of Finance. Vol. 33 (1) 281-287.
Zhang, C. & Clovis, J. (2010). China inflation dynamics: Persistence and policy regimes. Journal of Policy Modeling. Vol. 32 (3) 373-388.
According to the AMA, capital budgeting is "the decision-making process used by companies to evaluate long-term investments in large capital assets" (Hampton, 2011). Zeit (2013) makes the point that construction projects are included in the category of capital investment decisions, and that designers and architects are often involved. eiter et al. (2000) argue that because of their size and critical strategic nature, "capital investment decisions are among the most important decisions made by firms."
What this means is that capital projects tend to be large-scale projects that have several key characteristics. They require a lot of money, to the point where that money may need to be acquired through financing. So construction projects in particular like new buildings or new wings would qualify. There is some ambiguity in the research if a takeover or merger would qualify as a capital project when financed with cash, but a small-scale…
Cleverley, W., Song, P, & Cleverley, J. (2011). Essentials of Health Care Finance. Sudbury, MA: Jones & Bartlett Publishing.
FASB. (1985). Statement of financial accounting concepts No. 6. Financial Accounting Standards Board. Retrieved October 12, 2013 from http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175822102897&blobheader=application%2Fpdf
Hampton, J. (2011). The AMA handbook of financial management. AMACOM. Chapter 10.
Reiter, K., Smith, D., Wheeler, J. & Rivenson, H. (2000). Capital investment strategies in health care systems. Journal of Health Care Finance. Vol. 26 (4) 31-41.
Furthermore, capital gains normally tend to be spread across a wider income scale than many believe. According to the IRS Individual Income Tax Returns, Preliminary Data, 1992 federal income tax returns, 55% of returns claiming capital gains were from incomes of $50,000 or less, including a capital gain (Thorning, 1995). hat this information appears to come down to is that the capital gains tax affects almost everyone, which happens to affect the economy in general.
Tax Act of 2011
ith some of the huge advantages that have been back loaded, the Tax Relief Act of 2001 displays itself as more of a tax odyssey than what would be considered a tax act. The most positive of those that are called our planners really just provide estate tax repeal which is a 50/50 possibility of essentially being executed. Taxpayers and planners similarly are left with the troublesome query, "hat is the…
Gordon, M. (2209). Stock Market Looks More Like Face of America, Survey Says. The Associated Press Business News, 25.
John Freear and William E. Wetzel, J. (2009). Who Bankrolls High-Tech Entrepreneurs? American Council for Capital Formation Center for Policy Research,, 101.
Michael J. Graetz. (2010). Distributional Analysis of Tax Policy. Discovery and the Capitalist Process, 105-121.
Robert Gillingham, a. J. (2007). The Effect of Marginal Tax Rates on Capital Gains Revenue,. National Tax Journal, 123.
usinesses experience profit cycles implying that market fluctuations are inevitable in an economy. Market demand plays a crucial role in the profitability of an enterprise and consequently affects the investment trend. A profitable firm is more likely to invest money to improve production facilities or to extend its business into other domains. Investors will analyze the profitability of any undertaking and only if the expected revenue is greater than the cost of capital will they invest in the project. Keynesian theory also states that the Marginal efficiency of Capital is inversely related to investment. "[t]o induce new investment 'the rate of return over cost must exceed the rate of interest'. [Richard C.. Johnsson] For all businesses profit is the ultimate motivation and any new venture is undertaken only if the internal rate of return is above the cost of capital defined by the prevailing rate of interest. Hence…
J. Bradford DeLong, From Investment Demand to the IS Curve: Low Interest Rates," Accessed on June 7th 2004, http://www.j-bradford-delong.net/multimedia/ISLM2.html
Richard C.B. Johnsson, 'The Liquidity-Trap Myth', Accessed on 7th June 2004, http://www.mises.org/fullstory.asp?control=1226
This would play a role in helping to bring the Czech Republic into the EU in 2004. The effect that this would have on the Prague Stock Exchange is that it would cause it to rise to 1,940. At which point, it would have a severe down trend economy during 2008 and into 2009. The only difference is: that the various reforms and economic policies that the government was using at the time, helped to contribute to mitigating the effects of the slowdown (as the economy would experience a less severe economic contraction of 3.4%). ("Czech Republic")
The price movements of the Slovak equity market in the last 10-15 years
The ratislava Stock Exchange was founded in 1991 and has been in operation since 1993. ("asic Information") Like what occurred in the Czech Republic the Slovak stock market went through two bear markets that would last until 1998 -- 1999.…
"Basic Information." Bratislava Stock Exchange. 2010. Web. 24 Apr. 2010
"Czech Republic." State Department. 2009. Web. 24 Apr. 2010
"History of the Exchange." Prague Stock Exchange. 2009. Web. 24 Apr. 2010
But even with no cost savings whatsoever, this project has a positive NPV.
e can see, therefore, that the greatest area of sensitivity is with the terminal value. The terminal value at present is worth $143 million of the NPV. If we break down the variables that go into the terminal value, however, we notice that the cost savings are critical. If SGA expense is not reduced, then the terminal value is reduced to $67 million and the total NPV for the entire project ends up being $98 million. This figure is less sensitive to the change in cost of goods sold.
e should also consider testing combined sensitivity of our shakiest projections. Sales may not live up to expectations and cost savings might not occur. If we assume no net income and no additional cost savings, the project will have an NPV. If we assume that our expectations for…
No author. (2009). Free Cash Flow. Investopedia. Retrieved May 13, 2009 from http://www.investopedia.com/terms/f/freecashflow.asp
Ely, Bert. (2008). Savings and Loan Crisis. Concise Encyclopedia of Economics. Retrieved May 13, 2009 from http://www.econlib.org/library/Enc/SavingsandLoanCrisis.html
Damodaran, Aswath. (no date). Closure in Valuation: Estimating Terminal Value. Stern School of Business. Retrieved May 13, 2009 from http://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/dcfstabl.pdf
Breierova, Lucia & Choudhari, Mark. (1996). An Introduction to Sensitivity Analysis. MIT. Retrieved May 13, 2009 from http://sysdyn.clexchange.org/sdep/Roadmaps/RM8/D-4526-2.pdf
The NPV method is when the company will discount all possible income received from an investment, to where it is in line with their projected minimum rate of return (hurdle rate). At which point, managers will be able to see if the present value will have a positive or negative return for the organization in the future. Those projects that can provide positive present values will more than likely accepted, because they are providing a return that is in line with the company's minimum expectations. As a result, managers can use this method as another way of determining, if a project can meet their minimum objectives. When evaluating different projects, this provides an effective way of comparing the investment with the minimum returns. At which point, managers can see which project would provide the greatest economic benefit to an organization. ("Techniques of Capital udgeting," 2009)
The MIRR is when the…
Capital Budgeting Techniques. (n.d.). Retrieved July 13, 2010 from Murray State website: http://campus.murraystate.edu/academic/faculty/larry.guin/FIN330/CapBudTechniques.htm
Techniques of Capital Budgeting. (2009). Retrieved July 13, 2010 from Maps of World website: http://finance.mapsofworld.com/corporate-finance/capital-budgeting/techniques.html
Cooper, W. (2001). Capital Budgeting Models. Retrieved July 13, 2010 from Entrepreneur website: http://www.entrepreneur.com/tradejournals/article/116186585.html
investment management in the financial sector. The paper highlights the world's present macroeconomic situation. It further details the macro economic situation and the way it affects investment decisions in several investors. In addition, the paper describes a sample investment programme and provides critical decisions to investors as well as investment vehicles used by the investment moguls. The paper summarises practical exercises in compound investment management growth and the use of capital investment.
Investment management is an important part of the global financial sector, which is key in financing vast business empires. Investment management is incorporated under state laws employing several individuals and creating revenue to key players in the financial market. It is the management of several securities and assets to meet specific objectives for the benefit of the investors. The products used known as investment vehicles can be of minimal risks such as government bonds; carry high risks such…
Development Policies and Anaysis Division. (2012). World Economic Situation and Prospects. Retrieved May Friday, 2012, from www.un.org: http://www.un.org/en/development/desa/policy/wesp/index.shtml
B.P.Eregha. (2010). Interest Rate Variation and Investment Determination in Nigeria. International Business Management Journal, 41-46.
Blume, M. (1978). Inflation and Capital Markets. Cambridge: Ballinger.
Contrarian Investor's Journal. (2008, July 6). Effects of inflation on value of investment. Retrieved May Friday, 2012, from www.cij.com: http://cij.inspiriting.com/?p=482#
Private Sector Investment and Economic Development
Investment and economic development
The ole of Private Sector investment in Economic Development
In the past few decades there has been overwhelming support for growth and development rooted in private investments and market-oriented strategies. A move from public sector driven growth has come as result of the need to reduce the widening gap in the balance of payment account, increasing public debt, rising inflation rate, growing foreign debt fundamentally falling living standards. There has been a shift from the need for large public corporations undertaking productive activities in an economy owing to the realized inefficiency in resource allocation. Corruption and misappropriation of public funds is observable owing to the lacking need to optimally reap benefit from the investment. Unlike in the public sector, private sector investment guarantees optimal productive activities, efficient allocation of productive resource, technological advancements to reduce cost and increase productivity (Dao,…
DAO, M.Q. 2008. The Impact of Investment Climate Indicators on Gross Capital Formation in Developing Countries. The Journal of Developing Areas, 42, 155-163.
GROSSMAN, G.M. & HELPMAN, E. 1994. Endogenous innovation in the theory of growth. Journal of Economic Perspectives, 8, 23-44.
HARRISON JR., W., HORNGREN, C.T. & WILLIAM, C.T. 2012. Financial accounting 9th edition., U.S.A., Prentice Hall
JORGENSON, D. 1971. Econometric Studies of Investment Behavior: A Survey. Journal of Economic Literature, 9, 1111.
capital purchase, costing $5,000, company benefit . Examples include a X-ray machine, MI processor, software filing patient records, a research library, large item company . o Identify management goals expenditure support
The health care field is becoming presented with more and more pressures in today's society. There are numerous changes in the social and economic environments, which become combined to generate new pressures for the health care providers. The life expectancy of the population increases, generating increased needs for medical care for several years. Then, the Baby Boomers are retiring, causing a demanding generation, used to financial resources and access to services, to turn to the medical care sector for more services. The policies regulating the field also change as do the demands and expectations of patients.
In such a context, the health care institutions find themselves in a position in which they have to be better managed…
Brown, M., 1992, Health care information: strategy, structure and process, Jones & Bartlett Learning
Daft, R.L., 2009, Organizational theory and design, 10th edition, Cengage Learning
Finkler, S.A., Ward, D.M., Calabrese, T., 2011, Accounting fundamentals for health care management, 2nd edition, Jones & Bartlett Publishers
2012, Absolute Medical Equipment, http://www.absolutemed.com/Medical-Equipment/MRI-Machines last accessed on June 29, 2012
" (Kinnunen, 2004) the work of Kaplan and Schroar (2003) states findings that the past performance is highly relative to capitals flows to private equity funds.
The work of Mishra, Kemmerer, and Shenoy entitled: "Managing Venture Capital Investment Decisions: A Knowledge-ased Approach" relates the building of a causal map of the investment decision through use of interviewing venture capitalists and then converting this information into a "causal ayes net" which are stated to be "especially suited for domains characterized by a high degree of uncertainty." (Mishra, Kemmerer, and Shenoy, 2001) This technique has also been utilized in developing artificial intelligence and even used "in medical diagnosis, modeling portfolio risk and return, and new product development..." And are based on "probability theory." (Mishra, Kemmerer, and Shenoy, 2001) This method is reported to be one that increases the likelihood of gaining an understanding of the decision-making process of Venture Capitalists (VCs) and…
Kaplan, S. & Schroar, a. 2003. Private Equity Performance: Returns, Persistence and Capital Flows. MIT Sloan Working Paper No. 4446-03; AFA 2004 San Diego Meetings.
Cochrane, John H. The Risk and Return of Venture Capital. Working paper, University of Chicago, 2001.
Kinnunen, Harri (2004) Institutional Investor's Decision Making Criteria for Investing in Venture Capital Funds. Frontiers of E-Business Research 2004. Online available at http://www.ebrc.info/kuvat/695-709_04.pdf
Patel, Pankaj and D'Souza, Rodney (2008) Uncovering Knowledge Structures of Venture Capital Investment Decision Making. A Working Paper for SBA Office of Advocacy. Jan 2008. Online available at http://www.sba.gov/advo/research/rs315tot.pdf
Caterpillar Capital Budgeting
There are a number of qualitative factor that go into a capital budgeting decision. The first is that the company needs to think about how the purchase fits with its overall strategy. Caterpillar has an overall strategy, and its resources should be directed towards that. It has to think if a new computer network system -- which will have more costs than just 10% of last year's profits because there is a learning curve with new computer systems -- is going to be a good use of resources. Opportunity costs are a major issue in capital budgeting decisions because that money could be deployed elsewhere (CFA Institute, 2014).
There are other qualitative factors as well. For example, activities must be within the ethical framework of the company. They must also have a positive effect on some element of the company's objectives, like customer service. Ideally,…
CFA Institute. (2014). Capital budgeting. CFA Institute. Retrieved November 13, 2014 from http://www.cfainstitute.org/learning/products/publications/inv/Documents/corporate_finance_chapter2.pptx
Ingram, D. (2014). Qualitative factors in capital investment decisions. Houston Chronicle. Retrieved November 13, 2014 from http://smallbusiness.chron.com/qualitative-factors-capital-investment-decisions-73769.html
MSN Moneycentral. (2014). Caterpillar, Inc. Retrieved November 13, 2014 from http://www.msn.com/en-us/money/stockdetails/financials/fi-CAT?ocid=qbeb
Capital Gains Tax in Australia
Capital gains tax refers to a type of tax levied on capital gains incurred by organizations or individuals. The capital gains refer to the profits that an organization or individual selling a capital asset obtains through selling an asset at a price higher than the original price. In many countries, the amount of capital gains tax takes into consideration the type of investment and the holding period of the asset. Australian capital gains tax takes a proportion of all achieved capital gains. Capital gains are not separate tax but part of the income tax on individuals and corporations upon disposing of capital assets. Australian capital gains tax exempts personal properties such as home, car, and furniture. Australian residents in any part of the world are subject to capital gains tax.
Issue 1. Moodly's Conversion of her main residence.
Moodly being a childcare worker, wishes to…
OECD Tax policy studies. 2006. Taxation of Capital Gains of Individuals: Policy
Considerations and Approaches. No.14. Paris: OECD Publishing.
Pricewaterhouse Coopers. 2006. Mergers and acquisition: A global Tax Guide. New Jersey:
John Wiley and Sons Inc.
In a firm, most of the capital source comes from accumulation. This concept of capital accumulation defines how wealth is generated for the company by adding up amount in cash or other forms of asset into the capital account. Capital accumulation is solely for increasing the profits on the possession of the firm and no other aims are attached with it other than bolstering the revenue holdings of the company. Capital accumulation is not connected with increment in labor input or output. It is dependent upon the existing company profits that the firm uses to maximize the existing capital. Assets that are in possession of the firm can be used to increase the capital by appreciating in their value or acquire assets that can be used to create further wealth. Other ways firms bring accumulation of capital into process is through acquiring shares or mutual funds. Capital accumulation…
Giddens, A. (1996). Capitalism and Modern Social Theory. Cambridge [u.a.]: Cambridge Univ. Press.
Hunt, E.K., & Lautzenheiser, M. (2011). History of Economic Thought: A Critical Perspective. Armonk, N.Y.: M.E. Sharpe.
TR Jain, A.M. (2009). Development Economics. Chicago: FK Publications.
Capital Requirement and Risk ehavior
Arab African International ank
Midan ElSaray El Koubra, Garden City Caoro
The research will mainly dwell on the capital requirements and risk behavior of banks, more in particular the credit risk. The purpose of this research is to identify and analyze the relationship between capital requirements and the risk behavior of banks in Egypt
more in particular the Arab African International ank, which is the case study for this research. Secondly, the research will seek to investigate the impact of capital regulation on the banking behaviors and particularly on the levels of credit risk of banks operating in Egypt
The findings of the research show that there is negative relationship between capital requirement and banks' risk behavior; the findings also show there is empirical evidence to prove that capital regulations have a negative impact on credit risk of banks levels of credit risk of banks…
Aggarwal, R. And K. Jacques, (1998), a Simultaneous Equation Estimation of the Impact of Prompt Corrective Action on Bank Capital and Risk, New York, 12-23
Avery, R.B. And A.B. Berger, (1991), Risk-based capital and deposit insurance reform, Journal of Banking and Finance pp 847-874
Berger, A.N., Herring R.J. And Szego, G.P. (1995), the Role of Capital in Financial
Institutions, Journal of Banking and Finance pp 19, 393-430.
To solve these emerging needs of the company to satisfy the demand in the market, it is necessary to invest into expanding of the services offered and shifting the existing concept of the club. Firstly, it is necessary to expand the space occupied by renting out additional premises and organizing Spa procedures there. This will require also investment into necessary human resources, such as hiring Spa administrative and consultants specialists offering services for both women and men, and for both facials and body treatment to maximize the services mix. Costs for occupying this space, purchasing necessary equipment and hiring adequate staff so can exceed the current costs by ?450,000, so this is the incremental expense from proceeding with this services expansion programs. Cost to organize the fitness and Spa cafe, which is proposed to call at EnerGi Box, will amount to another ?100,000 annually. The final improvement step is investment…
Brayley, R.E., McLean, D. (1999). Managing Financial Resources in Sport and Leisure Service Organizations, Sports Publishing.
Mitchell, D. Coles, C. (2004) Establishing a continuing business model innovation process, Journal of Business Strategy, 25 (3), pp. 39-49.
D. Mitchell, C. Coles, Establishing a continuing business model innovation process, Journal of Business Strategy, Volume 25, No. 3, 2004, pp. 39-49.
A low payout on investments makes sense at certain times and in certain circumstances. Individuals or entities that receive a lower payout are oftentimes doing so to address issues such as higher tax rates and a deferred tax liability. If the investor's tax rate from income is lower than the tax rate for capital gains, then it makes complete sense to take a lower rate of payout because it saves the investor money on taxes.
Another reason for accepting a lower yielding investment from a business viewpoint is that it can decrease the amount of capital that needs to be raised for certain projects or investments. As one recent study determined "there is extensive literature in corporate finance on the proper way to incorporate flotation costs in the determination of project net present values (NPV)" (Simonds, 2006, p. 25). If a company's flotation costs can be lowered through the…
Economist, (2006) Instant returns, Vol. 381, Issue 8498, pp. 80
Simonds, R.R.; (2006) Income capitalization, flotation costs, and the cost of capital, Journal of Property Tax Assessment and Administration, Vol. 3, Issue 4, pp. 23 -- 29
The aim of hospitals is to measure and improve the quality of health care service for the patients. Patient satisfaction is the foremost concern. However, to run a hospital, there are a lot of other factors are also involved; e.g. managing cost, budgeting, optimizing operations and increase patient satisfaction level. In order to achieve the desired level of performance, the hospital needs to be up-to-date with the latest technology.
In this era of technological advancements, every company has to maintain all their records on computer because it saves time and needs less effort than manual work. Our hospital has digitalized their data but every department has its own data base. In order to optimize the operations, hospital requires having a central data base system.
As Schuhmann (2009) stated in his article that the recent economic crisis has made it difficult for hospitals finance their capital expenditures. The capital…
Bailey, C. (2012). The Cost Reduction Imperative. Becker's Hospital Review.
Cleverly, W.O., Cleverly, J.O., & Song, P.H. (2010). Essentials of Health Care Finance. Jones & Bartlett Learning.
Devraj, S., & Kohli, R. (2000). Information Technology Payoff in the Heath-care Industry: A Longitudinal Study. Journal of Management Information Systems, 41-67.
Finkler, S.A., Kovner, C.T., & Jones, C.B. (2007). Financial Management for Nurse Managers and Executives W.B. Saunders Company.
Capital Projects CSX
Capital Projects: CSX Railroad
CSX Railroad, the nation's third largest rail carrier by revenue (nine billion in 2009) according to Fortune 500 (CNN Money 2010), spends a considerable amount of its revenue (15%) on capital projects to update existing infrastructure, purchase new rail cars, expand intermodal and line access, and meet regulatory standards imposed by the Surface ransportation Board and the Federal Railroad Administration. (Mancini, L.N.D.). In 2009 the company spent 1.4 billion dollars on capital projects designed to "create competitive advantages for customers, grow the business, create jobs and deliver shareholder value" (Progressive Railroading. October 13, 2010). Of particular importance to CSX is the recent announcement of the National Gateway, "a multi-million dollar public-private infrastructure initiative, which will significantly improve the efficiency of the freight network between the Mid-Atlantic ports and the Midwest" (CSX Annual Report 2009).
he development of National Gateway is estimated to cost…
The development of National Gateway is estimated to cost 842 million dollars over a nine-year period (2007-2015), with costs trifurcated between federal monies of 258 million, state funds of 191 million, and CSX contribution of 393 million (CSX National Gateway. June 2010.). The initiative involves CSX along with six states and the District of Columbia, and is designed to "provide higher clearances under bridges and through tunnels for trains to move double-stack containers" (CSX Annual Report 2009). In addition CSX would build or expand several high-capacity, job-producing intermodal terminals where product shipments are exchanged between trucks and trains" (CSX. May 1, 2008). The anticipated gains from expanding rail lines to haul double stack containers include "reduced truck traffic and increase intermodal capacity on key corridors without increasing the number of trains" (CSX Annual Report 2009).
With any capital expenditure an analysis of its return on investment and impact on free cash flow must be addressed. CSX considerable investment must account for not only its cost of capital but potential risks associated with funding, cost overruns, and government regulation. Annual incremental cash flow associated with National Gateway will come from significant decreases in operating costs including: fuel, utilization of economies of scale, and increased capacity per freight line haul. In 2009 CSX achieved a record performance of 74.7% on their operating margin; succinctly the company makes 74.7 cents before interest and taxes on each dollar of sales. With operating income of 2.285 billion in 2009, CSX with its National Gateway initiative expects to see substantial increases in operating income and subsequently free cash flow (CSX Annual Report 2009). National Gateway "enables each train to carry about twice as many cargo boxes; and trains can move a ton of freight 423 miles on a single gallon of fuel, and can carry the load of more than 280 trucks," (CSX. May 1, 2008). Because of the efficiency and cost effectiveness of this initiative "the Company expects to deliver double-digit earnings per share growth for 2010" (CSX Annual Report 2009).
Potential problems though could derail the company's rosy forecasts for National Gateway. The first of these is funding concerns specifically from federal and state sources. The project was injected with "$98 million in funding through the American Recovery Reinvestment Act of 2009" (CSX Annual Report 2009) however, that leaves 160 million in yet unfunded commitments from the federal government. Given the emerging consensus that U.S. debt and deficits are spiraling out of control; significant cutbacks on infrastructure spending are more likely in the coming years, which will leave CSX open to carrying more of the funding requirements. State funding though is also a
Using values found in a table of factors for calculating the present value of a dollar; the periods one through four have the following present value factors:
Year One= .9259
Year Two= .8573
Year Three= .7938
Year Four= .7350
Next these factors are multiplied individually by the net cash flow generated by the investment in each period.
Year One= $500,000
Year Two= $450,000
Year Three= $350,000
Year Four= $320,000
The multiplication calculation reveals the discounted cash flow values:
Year One= $500,000*.9259= $462,950
Year Two= $450,000* .8573= $385,785
Year Three= $350,000* .7938= $277,830
Year Four= $320,000*.7350= $235,200
The total sum of the cash flows net present value is $1,361,765; as such the net present value as compared to the overall investment of $1,200,000 is positive $161,765, and therefore the projected rate of return on this investment is greater than the eight percent cost of capital, and the investment…
Marshall, D. & McManus, W. (1996). Accounting: What the Numbers Mean.
Third Edition. McGraw Hill.
Investment in Higher Education as a Tool for Promoting a Stronger Economy: Examining the Literature eviews of Previous Dissertations
The following research is an exercise where three dissertations under a similar topic were mined in order to better understand their organizational structure, thematic content, and approach to examining the current discourse. The primary topic here is going to highlight how reinvestment into higher education can help facilitate for a stronger, more stable economy based on a number of factors and indicators. The research which follows explores three similar dissertations that show a clear connection between investment in higher education and positive economic factors.
Carnoy, Martin. (2006). Working paper no. 297: Higher education and economic development: India, China, and the 21st century. Stanford Center for International Development. Web. http://www.stanford.edu/group/siepr/cgi-bin/siepr/?q=system/files/shared/pubs/papers/pdf/SCID297.pdf
I. Education and Economic Growth
A. Macroeconomic Approaches to the Education-Economic Growth elation
i. Previous studies have shown that when there…
Carnoy, Martin. (2006). Working paper no. 297: Higher education and economic development: India, China, and the 21st century. Stanford Center for International Development. Web. http://www.stanford.edu/group/siepr/cgi-bin/siepr/?q=system/files/shared/pubs/papers/pdf/SCID297.pdf
Howe, Caroline. (2009). The Role of Education as a Tool for Environmental Conservation and Sustainable Development. Imperial College London. Web. http://www.iccs.org.uk/wp-content/thesis/phd-howe,caroline09.pdf
Lundvall, Bengt-Ake. (2007). Higher education, innovation and economic development. Department of Business Studies Aalborg University, Denmark. Web. http://dimaricerca.univpm.it/EconInno/Economics%20of%20innovation/BengtAkeLundvall_higher_educ.pdf
The Nexus Q, Google's new media streamer, is failing to satisfy investors because it fails to incorporate Google TV, is limited to Google Play, while You Tube has all the necessary features has been let down with the Nexus Q, and it has no Android interface (Smith). The operating system has been buried under Google-owned apps. The device is lacking in features with an overbuilt operating system. With the device costing more to the consumer than competitive products, this will not sell well and could cause the company to develop a bad image. Competitor products include Apple TV, Roku, and other Internet friendly set up boxes.
To make this product more competitive and provide justification needed for the higher price to consumers, it needs to be upgraded to provide features compatible for Google TV, You Tube, and Android compatible features for users to be able to do more…
Google, Inc. Annual Report. 31 Dec 2011. Document htm. 05 July 2012.
Horngren, C.T., S.M. Datar and G. Foster. "Chapter 21." Horngren, C.T., S.M. Datar and G. And Foster. Cost Accounting 12th ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2006. 839. Textbook.
Smith, P. Google Inc. (NASDAQ:GOOG) Under Uses Its Impressively Built Nexus Q. 05 July 2012. News Article. 05 July 2012.
Making a decision as a venture capitalist, whether as a director/adviser for a venture capital firm or as an individual investor looking for a substantial investment opportunity, requires a great deal of consideration on various levels. Before a decision to invest is made, a careful consideration of the quantitative and qualitative aspects of a company must be undertaken, and the potential payoff of any investment must be weighed against the risks identified both within the company and in its operating environment. The following paragraphs will present a brief analysis of two publicly traded companies that are well-established, yet are also potentially large investment opportunities for an entity with an appropriate amount of capital. The risks and current states of these companies will be assessed along with other details and information in order to determine which company represents the best investment.
pSividia Corp., founded in 1987, specializes in…
Yahoo Finance. (2011). PSVD. Accessed 2 June 2011. http://finance.yahoo.com/q/pr?s=PSDV+Profile
Yahoo Finance. (2011). SMED. Accessed 2 June 2011.
D 20 Lev
D 50 Lev
5. The only project that is unacceptable is Project D. At the 50% leverage level. This has a negative NPV. The other projects at each leverage level all have positive net present values. The following graph shows the NPVs for the different projects:
6. My objective in making this decision is to maximize firm value. The projects are mutually exclusive. I would use NPV as the main criteria. This means that Project B. is the most desirable, at the zero leverage level. Project A is the second-most desirable, against at the zero leverage level. Project C. is the third-most desirable. Project D. is the least desirable and at the 50% leverage level is unacceptable. I feel that it is best to use NPV has the criteria…
EU nations have blamed deregulation in the U.S. sector for the credit crisis and subsequent recession, specifically the complex risk exposures not fully understood and assessed by banks and investors; poor and fraudulent underwriting standards; lack of investor and agency due diligence; a failure of transparency; and the structure of compensation schemes and incentives in the U.S. banking industry (Griffin 2008). The failure of the U.S. capital adequacy standards was apparent when even U.S. banks that possessed what would, under normal circumstances be adequate capital reserves were taxed in the subsequent panic, after Lehman Brothers was not 'bailed out' by the U.S. government and many lenders demanded a return on their investments.
The EU has always had more stringent liquidity risk management system. The current system requires all banks to have liquid assets that cover 100% of potential outflows over am eight-day period and 90% of potential outflows over a…
Capital adequacy. (2009). The Business Dictionary. Retrieved November 8, 2009 at http://www.businessdictionary.com/definition/capital-adequacy.html
Griffin, Conor. (2008, July 8). Basel II: Capital adequacy regulations and the credit crisis -- cause or cure? Chartered Accountants. Retrieved November 8, 2009 at htp://www.charteredaccountants.ie/Members/Technical1/Financial-Services/Accountancy-Ireland-Articles/BASEL-II-CAPITAL-ADEQUACY-REGULATIONS -- THE-CREDIT-CRISIS-CAUSE-OR-CURE/
Risk-based capital guidelines; capital adequacy guidelines; capital maintenance: Asset-backed commercial paper programs and early amortization provisions. (2003, October).
Retrieved November 8, 2009 at http://www.bankinfosecurity.com/html/risk-based-baselii-meeting-summary.html
The simulation mannequin is an important part of nursing training, so is a valuable asset to a nursing college. The cost of the mannequin is $10,000. This is just one of many pieces of equipment that are required for the running of a high quality nursing college. There is a considerable body of research that supports the use of high quality simulation mannequins in medical training. One study showed that 85% of students and educators viewed sessions with simulation mannequins favorable to the overall education experience and 80% of respondents in the same survey said that they would recommend such mannequins "for all medical students" (Gordon et al., 2001). Other studies have achieved even higher levels of success, and students indicated that mannequins allowed them to learn better than if they had just learned from a text alone (Fernandez, et al., 2007). There is further evidence to suggest…
Fernandez, R., Parker, D., Kalus, J., Miller, D. & Compton, S. (2007). Using a human patient simulation mannequin to teach interdisciplinary team skills to pharmacy students. American Journal of Pharmaceutical Education. Vol. 71 (3) 51.
Gordon, J., Wilkerson, W., Schaffer, D. & Armstrong, E. (2001). Practicing medicine without risk: Students' and educators' responses to high-fidelity patient simulation. Academic Medicine. Vol. 76 (5) 469-472.
Henneman, E. & Cunningham, H. (2005). Using clinical simulation to teach patient safety in an acute/critical care nursing course. Nurse Educator. Vol. 30 (4) 172-177.
There are a number of risks facing Capital One in the near future. As a financial institution, Capital One faces interest rate risk, in particular given the possibility of a perpetually low interest rate environment (2011 Annual Report, p.2).
There is also the risk that economic recovery will not be strong, given the dependency of Capital One on consumer spending, in particular the rise of consumer debt (2011 Annual Report, p.18). There are also significant risks in the regulatory environment, as banking is a heavily-regulated industry and there are a number of changes proposed to the regulatory environment (p.20).
The company has a number of strategies to mitigate these risks. It addresses interest rate risk by utilizing different financial assets, including different brands and sources of capital, to lower its cost of capital. Geographic diversification also helps to mitigate economic risk, although the company does still have concentration…
MSN Moneycentral. (2012). Capital One. Retrieved November 17, 2012 from http://investing.money.msn.com/investments/stock-income-statement/?symbol=COF
Capital One 2011 Annual Report. Retrieved November 17, 2012 from http://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-reportsannual
Investopedia. (2012). Capital asset pricing model. Investopedia. Retrieved November 17, 2012 from http://www.investopedia.com/terms/c/capm.asp#axzz2CQKKm1WP
Essentially, there are really only two ways in which organizations can raise money -- debt or equity. The core of this comes down to cash flow for each type of financing. A debt claim, for instance, allows the holder to a set of cash flow, typically principle and interest; an equity claim entitles the holder to any leftover cash after meeting all other claims. Secondly, debt has prior claim on cash flow and assets. This complicates the matter of the way debt is managed and analyzed when looking at different industries. For instance, debt as a percentage of the market value of equity in an airline would be different than one in say, electronics -- all dependent upon a variety of inventory and supply/demand, price elasticity ratios.
Organizations that have high debt-equity ratios seem to be the ones that have longer term, or higher cost-based services; or those…
These types of investments are often illiquid, so the investor needs to view them as long-term investments. However, the lack of liquidity also means that for the most part they have low levels of correlation with the broad market.
Derivatives are another possibility, and their potential impact on the portfolio will be discussed in the next question. They can either increase risk or decrease risk, depending on the type of derivative and how it is used.
Overall, the impact of alternative investments is to reduce the degree to which the portfolio is subject to the equity and fixed income markets. Alternative investments are often used as an ancillary component of the portfolio, to reduce the portfolio's overall volatility but with the hopes that returns will not suffer as a result.
3. Derivatives can be used for a couple of different purposes in a portfolio. The first is to increase leverage…
De Santis, R. & Sarno, L. (2008). Assessing the benefits of international portfolio diversification in bonds and stocks. European Central Bank working paper. Retrieved May 6, 2010 from http://www.ecb.int/pub/pdf/scpwps/ecbwp883.pdf
Driessen, J. & Laeven, L. (no date). International portfolio diversification benefits: Cross-country evidence from a local perspective. International Monetary Fund. Retrieved May 6, 2010 from http://www.luclaeven.com/papers_files/Diversification_JBF_final.pdf
Lhabitant, F. (2000). Derivatives in portfolio management: Why beating the market is easy. EDHEC. Retrieved May 6, 2010 from http://www.edhec-risk.com/edhec_publications/RISKReview1055927251987929638/attachments/EDHEC_WhyBeatingTheMarketIsEasy.pdf
Schweizer, D. (2008). Portfolio optimization with alternative investments. European Business School. Retrieved May 6, 2010 from http://www.wbiconpro.com/339-Schweizer, D.pdfYavas, B. (2007). Findings indicate that co-movements among the U.S., Germany and Japan markets are significant. Pepperdine University. Retrieved May 6, 2010 from http://gbr.pepperdine.edu/072/diversification.html
Although advertising costs can be substantial, it is essential that companies place significant amounts of funding into advertising. Such funding is necessary because it provides companies with a competitive advantage. According to Doraszelski & Markovich, (2007)
"Practitioners know very well the value of advertising to achieving their long-term market share and profitability goals. A survey of senior executives in 1999 reveals that 82.9% somewhat or strongly agree that good advertising can provide their company with an edge over the competition in the marketplace. Furthermore, 86.8% somewhat or strongly agree that advertising is a long-term investment that contributes to the financial growth and stability of their company (American Advertising Federation, 1999; Doraszelski & Markovich, 2007)."
The authors also explain that firms believe that advertising has the capacity to give them a sustainable competitive advantage over other firms (Doraszelski & Markovich, 2007). Nevertheless, dynamic models of advertising competition, assert that the opposite…
Bagwell, K. (2005) the Economic Analysis of Advertising. http://ideas.repec.org/h/eee/indchp/3-28.html
"Brand Value." http://dictionary.bnet.com/definition/brand+value.html
Doraszelski U., Markovich S. (2007). Advertising dynamics and competitive advantage. RAND Journal of Economics Vol. 38, No. 3, pp. 557 -- 592
Grullon G., Kanatas G. And Kumar P. 2006. The Impact of Capital Structure on Advertising Competition: An Empirical Study.
ith a strong customer and employee basis, the company envisions taking early leadership of the global market. This is also to be based upon management excellence on a local scale. The management team is envisioned to be capable of translating vision into performance on both a local and global scale, while also investing strategically to maximize profitability and performance.
d. In terms of Research and Development, Applied Materials has increased its investments despite economic downturns. The purpose of this was to increase its potential future profitability by providing advanced manufacturing systems for its customers worldwide. This proved to be a good strategy, as the company had build a broad product line that catered for nearly every chip manufacturing stage. In order to reach the next step; integrating systems to perform a specific process sequence, a new facility was needed, and 1997 saw the beginning of construction on the Equipment and…
With a strong customer and employee basis, the company envisions taking early leadership of the global market. This is also to be based upon management excellence on a local scale. The management team is envisioned to be capable of translating vision into performance on both a local and global scale, while also investing strategically to maximize profitability and performance.
d. In terms of Research and Development, Applied Materials has increased its investments despite economic downturns. The purpose of this was to increase its potential future profitability by providing advanced manufacturing systems for its customers worldwide. This proved to be a good strategy, as the company had build a broad product line that catered for nearly every chip manufacturing stage. In order to reach the next step; integrating systems to perform a specific process sequence, a new facility was needed, and 1997 saw the beginning of construction on the Equipment and Process Integration Center (EPIC).
EPIC represents the first facility of its kind in the semiconductor industry, in its capacity as a dedicated 200mm pilot line integration facility. Specifically, the Center enables the company's customers to make their technology transitions with greater speed and ease. To do this, the Center enables them to evaluate and integrate new manufacturing systems in advance of installing these. This provides the company with an important leading edge in the global marketplace. To accomplish this was a challenge on multiple levels that did not end with the Center opening its doors in 1998. Indeed, in order to adhere to its central aims, engineers for the center had to effectively implement systems by which they could set up their systems as often as once per month and make quick modifications according to differing requirements.
Investments are the assets or items purchased with the anticipation to generate the income in the future. In the economic sense, investments refer to the goods and services purchased and not consumed today for the purpose of generating wealth in the future. Similarly, going to a university or building a factory to produce goods and services are the examples of investments. Within a financial environment, investors purchase assets with the hope that they will appreciate in the future, thus, creating wealth for the investors. Examples of investment in the financial circle include purchasing of stocks, or real estate property with the anticipation that they will appreciate in the future. Despite the benefits that can be derived from the investment purpose, the investment is not something an individual can take lightly. Investors are to implement a careful planning to reap the benefits of an investment. Typically, an investor can lose his…
Costa, D. (2011). The Portable Private Banker Investing Efficiently through Mutual Funds and ETFs. UK. CreateSpace Independent Publishing Platform.
Morningstar (2014). Exchange Traded Funds, Morningstar website. Avaliable from:
Morningstar (2014). ProShares Ultra Nasdaq Biotechnology BIB, Morningstar website. Avaliable from: http://performance.morningstar.com/funds/etf/total-returns.action?t=BIB®ion=usa&culture=en-U.S .
Investment boils down to the very simple concept of risk versus reward. Investors, in aggregate must be compensated for the risks embedded within a particular security. lthough risk is subjective and varies die to differences in valuation technique, reward is universal. Investors are constantly seeking investments that offer the highest returns given the risk. In particular, due to market inefficiencies investors are often looking to achieve "lpha." lpha is simply a return achieved above the required return. In this pursuit of higher returns, investors risk losing large sums of money as unforeseen events occur. Chart 1 provides a visual representation of this concept.
Investors, seeking higher return must unfortunately take higher risk. Risk in this instance is NOT defined as Beta as many academics use. Instead, here risk is defined as the propensity for permanent capital loss. s investors move further left, notice the variance of returns becomes larger. lthough…
A second comment should be made about the dynamics of the startup industry and how it relates to individual investors. In the introduction, I mentioned that all investors are looking for high return investments that offer Alpha. I then went on to define Alpha and its relation to startups. One aspect that was omitted was that of industry dynamics. Although this is partially represented in the required return, changes in industry dynamics can often discourage investment in startups. In particular, unforeseen changes can quickly halt or change progress of a startup. For example, within the technology space, change occurs so rapidly that an industry leader quickly becomes an industry laggard. These changes can cause expected returns to decline to below the cost of capital. Investors realizing this will therefore become discouraged to continue the investment required to maintain the operations of the startup.
Thorp, Edward (2010). Kelly Capital Growth Investment Criterion. World Scientific. ISBN 9789814293495. Pg 3-56
It would be difficult for the company to satisfy its shareholders with differing interests, but there is a solution-Net Present Value.
Using Net Present Value (NPV) as criteria to select projects assumes proficient capital markets. In other words, in order to work the company has to have access to whatever budget is needed to continue the positive Net Present Value projects. Sometimes there may also be capital ration and the concept of capital budgeting process becomes more and more complex.
Alternative Rules for Capital Budgeting
While NPV is the rule which maximizes value of shareholders, some companies use other strategies for their capital budgeting decisions. Common alternative strategies include:
Internal Rate of Return (IPR)
Return on Book Value
Investment decisions made from the Profitability index and Internal Rate of Return methods agree with those of Net Present Value. Decisions made using the return on book value…
There are five strategic projects that are available for Superior Health System. The system lost money last year, but it does have a contingency fund. Whether it is worth dipping into that fund, or other avenues of financing, depends on the strength of these projects. So it is important to analyze the projects.
Partner with a major supplier who will guarantee price, delivery, and product quality
Expand the ENT, Plastic, Gynecology, and Orthopedics surgical programs
Develop a cost-reduction program.
Spend $3,000,000 to expand primary care physician membership in Corinth Health Systems, SHS's PHO
The rational for this order is as follows. Financially, the first two options are positive. Partnering with a major supplier, if it costs nothing up front and delivers that sort of value, should have been done yesterday. Expanding the ENT, gynecology and orthopedics departments has the highest up front cost, and while that might be…
(Steward, 2008, ¶ 15).
II: BODY (TITLE TO BE DETERMINED)
To explore the thesis, introduced at the start of the paper, the writer addresses the question: Do the investment risks that customers of conventional banks and financial houses may experience differ from those customers of sharia compliant financial institutions may encounter? During this segment of the research paper, the writer relates relevant information to Investing (Including Risks)
Investing (Including Risks)
Sukuk depict one type of bonds that meet the sharia requirement that interest cannot be charged or received. Sukuk often work so that those who hold them as investments are entitled to a share of the profits of the company that issued the sukuk.
A. Analytical summary
1. Investing (Including Risks)
3. Contemporary Considerations
B. Thesis reworded
C. Concluding statement
Adam, N.J. & Thomas, A. (2004). Islamic bonds:…
Wecker, M.. (2010). The promise of Islamic banking and finance. The Arab-American News
Retrieved September 28, 2010 from HighBeam Research:
This also implies inadequacies in fiscal sustainability, which influences investments in private sectors.
The second channel happens through the level, composition and quality involved within the public investment, which shows the level at which the public investment replaces the private investments (Schmidt- Hebbel, Serven, & Solimano, 1996).
The final channel regards the level of taxation on the corporate earnings and the rules applicable in depreciations.
There have been arguments that fiscal policy and public expenditure reduces the private investments in two different manners. These include increasing the interest rates or lowering the private funds involved in financing the investments.
According to the neoclassical theory, the interest rate is also an imperative variable in finding the level of investment. Consequently, it results into a negative effect because it upsurges the interest payable in investments. Concurrently, McKinnon and Shaw, contends that this is likely to cause a positive relationship between the investment…
Shrestha, M.B. (2005), "ARDL Modelling Aproach to Cointegration Test," Proceedings of the 46th Annual Conference of New Zealand Association of Economists, Paper
No. 13, Wellington, July 2005.
Keynes, J.M. (1936). General Theory on Employment, Interest and Money., London,
" (Grabel, 2004) Good institutions serve as the basis for economic growth due to right market-based and market-guided incentives being created which include those stated in this study and specifically: (1) rule of law; (2) competitive markets; (3) low taxation (4) noninflationary monetary policies; and (5) free trade. (2002) Good institutions serve to "Foster other cultural patterns of conduct, hard work, savings and industriousness, honesty and trustworthiness, creativity, and self-responsibility. These are the bases of the wealth of nations." (Easterly, 2002; as cited in: Ebeling, 2002) These tools are helpful in avoiding and mitigating economic risks in development.
Easterly, W (2002) the Elusive Quest for Growth: An Economists Adventures and Misadventures in the Tropics (Cambridge, MIT Press) Chapter 2
Krueger, a.O (1998) Why Trade Liberalization Is good for Growth, Economic Journal 108
Demetriades, P. And Hussein, K.A (1996) Does Financial Development Cause Economic Growth? Time-Series Evidence From 16 Countries,…
Easterly, W (2002) the Elusive Quest for Growth: An Economists Adventures and Misadventures in the Tropics (Cambridge, MIT Press) Chapter 2
Krueger, a.O (1998) Why Trade Liberalization Is good for Growth, Economic Journal 108
Demetriades, P. And Hussein, K.A (1996) Does Financial Development Cause Economic Growth? Time-Series Evidence From 16 Countries, Journal of Development Economics 51, pp387-411.
Grabel, I. (2003) International Private Capital Flows and Developing Countries, in H-J. Chang (ed.) Rethinking Development Economics, London: Anthem Press.
Investment and Trade Over the Next 30 Years
Perhaps the most notable trend in recent economic history has been the falling-away of the influence of the G7 nations of United States, Japan, Germany, ritain, France, Canada and Italy and the explosion of economic clout in the developing world (What is the G7, 2012, Wise Geek). All eyes are looking to China, in terms of the trending of trade and investment patterns. China is the world's largest potential market, and still has untapped growth in terms of its vast consumer marketplace. That is why the Chinese economy is often seen as a barometer of the health of global demand. For example, in the last quarter, "trade was a net drag on growth last year as the world's second biggest economy turned in its slowest rate of expansion since 2009, at 9.2 per cent, with each quarter's growth in 2011 successively weaker…
Edwards, Nick. 2012. China surprises with March trade surplus. The Globe and Daily Mail.
Viewed 24 Apr 2012 at http://www.theglobeandmail.com/report-on-business/international-news/china-surprises-with-march-trade-surplus/article2396805/
Greenblatt, Alan.2011. As Europe ages, its economies look vulnerable. NPR. Viewed 24 Apr
2012 at http://www.npr.org/2011/09/24/140736119/as-europe-ages-its-economies-look-vulnerable
SAC Capital Structure
The Sparklin Automotive Company needs to make a capital investment of $3,000,000 to improve its manufacturing facilities. This investment needs to be carefully considered along two dimensions. The first of these is that the company needs to consider the investment from a capital budgeting point-of-view. The second is that the company does not want to change its capital structure as the result of this decision. The current capital structure is 60% equity and 40% debt. The company needs to utilize the best analytical tools possible for making a capital budgeting decision. There are a number of methods that are common. A net present value (NPV) calculation, an internal rate of return (IRR) calculation, and a payback period calculation are three of the most common. Each of these will be considered, although NPV is the most trusted methodology because it is most closely aligned with total shareholder value.…
Investopedia (2010). Weighted average cost of capital. Investopedia. Retrieved September 3, 2011 from http://www.investopedia.com/terms/w/wacc.asp
There are many firms that exist and operate within the capital management realm. Some companies operate and expand via their internal income and operations. There are other firms that are not currently self-solvent. However, the latter is commonly able to expand through capital investment and fundraising. The goal with such firms, of course, is to ramp up business levels, pricing structures and so forth so as to get to a profit at some point, even if it takes a few years. Indeed, many firms start off relying on capital investment and resource allocation at first and then become able to expand organically with no outside support, budgeting or investment. While firms like Amazon are a behemoth right now, there was a time where their operations and capital structures were quite thin internally and thus they needed a lot of investment and support through the capital investment and budgeting process.
How firm raise capital by using venture capital? What conditions we need to raise capital by using venture capital?
Many startup companies are not mature enough to obtain capital from the public or secure a loan with the local banks in their area. They therefore, have to rely on venture capital as a way of raising capital for the firm to continue with the daily operations. Firms hence, raise capital by going out and looking for people who are willing to invest their money in a company that they see has the potential for growth. The company looks for a number of people who can pitch in large amounts of money depending on the nature and type of the business which if successful is expected to give above average returns to investors (Krishnan & Ivanov et al. 2011).
There exist certain conditions for a firm to secure capital…
Krishnan, C.V., Ivanov, V.I., Masulis, R.W., & Singh, A.K. (2011). Venture Capital
Reputation, Post-IPO Performance, and Corporate Governance. Journal Of Financial & Quantitative Analysis, 46(5), 1295-1333.
Hsu, Y. (2010). Staging of Venture Capital Investment: A Real Options Analysis. Small Business Economics, 35(3), 265-281.
Hopp, C. (2010). When Do Venture Capitalists Collaborate? Evidence on the Driving Forces of Venture Capital Syndication. Small Business Economics, 35(4), 417-431.
There are only a couple of key assumptions used in the creation of the NPV data. First, with respect to fixed costs, the wording "will increase by 3.8% over the life of the project" is ambiguous. We need an actual figure for each year. It is assumed therefore, in the interests of being conservative, that the word "annually" was accidentally omitted and fixed costs will increase 3.8% each year over the life of the project.
The sunk costs, it must be stated, were omitted from this calculation as they are not an incremental cash flow (Investopedia, 2015).
There is nothing stated about the return of working capital at the end of the project, so it is assumed that this money vanishes into the ether at the end of the project, because returning it would substantially increase the value of the project. Whether the working capital is returned at…
Fernandez, P., Ortiz, A. & Acin, I. (2015) Discount rate (risk free rate and market risk premium) used for 41 countries in 2015: Survey. IESE Business School. Retrieved December 4, 2015 from http://faculty.mccombs.utexas.edu/keith.brown/AFPMaterial/FernandezEtAl%20WP-Global%20ERP-4.23.15.pdf
Investopedia (2015). Complete guide to corporate finance. . Investopedia. Retrieved December 4, 2015 from http://www.investopedia.com/walkthrough/corporate-finance/4/capital-investment-decisions/incremental-cash-flows.aspx
MACRS 10-year table. Retrieved December 4, 2015 from https://www.irs.gov/publications/p946/ar02.html
MSN Moneycentral: Hasbro. Retrieved December 4, 2015 from http://www.msn.com/en-us/money/stockdetails/analysis/fi-126.1.HAS.NAS?ocid=qbeb
Investible PTY LTD. offers a degree that distinguishes and creates pioneering capability and limits the risk of pre-IPO speculation. The organization gives business constructing projects; and creates a pipeline of investible companies and startup organized functionality. It offers the “lab,” expert enterprise development and execution motor that ensures individuals are geared up with the gadgets to collect and process data, create further decisions, networks, and additionally put in place compliances. Investible acts as the admission to an association of startup funding, which can open doorways to potential partners for businesses and the firm. Investible PTY LTD modified into consolidated in 2015 and is situated in Sydney, Australia. According to LinkedIn, Investible has roughly twenty-five employees. Comment by Ingrid Martin: These two sentences don’t make sense?? Comment by Ingrid Martin: Which is what? Comment by Ingrid Martin: I’m not sure where this information comes from but it is really confusing……
Would you recommend that ExxonMobil use a single company- wide cost of capital for analyzing capital expenditures in all its business units? Why or why not?
To start with, a single company-wide cost of capital implies that the firm uses one general cost of capital as the discounting rate for all of the capital expenditures within its business operations irrespective of whether they come from different departments. The recommendation for Exxon Mobil is that it should not make use of a single company-wide cost of capital when analyzing capital expenditures for all of its business units. Instead, the company should make use divisional cost of capital for each business unit independently when undertaking an analysis for capital expenditures (California State University, n.d).
This follows from the consideration of aspect of difference in the levels of risks involved, in the different business units. For Exxon Mobil, as every business…
California State University. (n.d.). Firm-wide versus divisional cost of capital. Retrieved 2 September, 2015 from: http://www.csun.edu/~vcfin003/divisionk.htm
Kruger, P., Landier, A., & Thesmar, D. (2011). The WACC fallacy: The real effects of using a unique discount rate. Journal of Finance, Forthcoming.
Pratt, S. P., Grabowski, R. J. (2010). Cost of Capital: Applications and Examples. Hoboken: John Wiley and Sons.
Even though investment prospects vary radically across businesses and industries, one would anticipate the manner of assessing financial returns on investments to be properly even. In this case, Exxon Mobil has its investments not only in the natural gas resources sector but also in chemicals and downstream business operations. Cost of capital also referred to as weighted average cost is basically the required rate of return that ought to be generated on an extra or additional investment for the market value of the company to actually remain the same. So what approach should Exxon Mobil take in determining its own cost of capital for generating new capital investment decisions (Jacobs and Shivsdasani, 2012)?
Firstly, it is imperative for Exxon Mobil to ascertain the difference that is there between the cost of the department and the cost of the firm itself. This is for the reason that the cost of…
Jacobs, M. T., Shivdasani, A. (2012). Do You Know Your Cost of Capital? Harvard Business Review.
Pratt, S. P., Grabowski, R. J. (2010). Cost of Capital: Applications and Examples. Hoboken: John Wiley and Sons.
Long-Term Capital Management
The Failure of Long-Term Capital Management
The Long-Term Capital Management is a popular term relating to hedge funds that experienced massive failure. The fund was initially a success from the time it was launched accumulating over $100 billion in just three years (Yang, 2014). It became highly attractive on Wall Street for everyone because of the astounding profits it made. Despite being run by highly experienced personalities like professors and finance experts, their performance turned sour in 1998 (Yang, 2014). Banks that were giants in the American banking industry were facing a loss of over $1 trillion because of their demise (Yang, 2014). The problem of LCTM occurred and accelerated so quickly that in less than twelve months, $4.4 billion that was part of the $4.7 billion capital had vanished. LCTM was on the verge of collapsing towards the end of 1998, and if it did then,…
Amadeo, K. (2016). What Was the Long-Term Capital Management Hedge Fund Crisis?. The Balance. Retrieved 31 May 2017, from https://www.thebalance.com/long-term-capital-crisis-3306240
Jorion, P. (1999). The Story of Long-Term Capital Management. Investment Review. Retrieved 31 May 2017, from http://www.investmentreview.com/print-archives/winter-1999/the-story-of-long-term-capital-management-752/
Rimkus, R. (2016). Long-Term Capital Management. Econ crises. Retrieved 31 May 2017, from https://www.econcrises.org/2016/04/18/long-term-capital-management/
Yang, S. (2014). The Epic Story Of How A 'Genius' Hedge Fund Almost Caused A Global Financial Meltdown. Business Insider. Retrieved 31 May 2017, from http://www.businessinsider.com/the-fall-of-long-term-capital-management-2014-7?IR=T
capital covers a number of elements regarding a company's investment and return rates. A company's cost of capital is essentially the rate of return on capital invested in the company and "the market's required rate of return on that invested capital" (4). Cost of capital covers both debt and equity capital considerations. It covers the costs of the returns from those capital investments given external market and industry factors. Companies that use a combination of both debt and equity to finance their operations use the weighted average cost of capital, which is basically an averaged number of the debt and equity resources.
There are a number variables that Exxon Mobil (XOM) should consider when determining the cost of capital for making new investment decisions. First and foremost, executives need to ensure that any investment decisions are ultimately adding value for shareholders. To do this, the company would need to understand…
Determining the ranking of mutually exclusive projects is another step used by firms in the decision making process. Investments are determined on an annual basis by a business's board in agreement with and limited by the company's spending budget for the year. Once the capital budgeting and sensitivity analysis reports are complete on all projects, the projects are then reviewed on additional factors such as overall purpose within the company, and are ranked from best to worst (Bacon, 1977). Those projects that fail to meet certain numerical hurdles are simply eliminated from the list and not considered by an investment board. Some decisions may be close to certain numerical hurdles but also have other overarching reasons for acceptance. Some examples may include investments for improvements in compliance with legislation. These investments must be done regardless of their overall worth, and typically are more beneficial to a company if done sooner…
Bacon, Peter (1977). The Evaluation of Mutually Exclusive Investments. Financial Management. Vol 6.2, 55-58.
Barney, Dwayne; Danielson, Morris (2004). Ranking Mutally Exclusive Projects: The Role of Duration. The Engineering Economist. Vol 49.1, 43-61.
Mills, Geofrey (1996). The Impact of Inflation on Capital Budgeting and Working Capital. Journal of Financial and Strategic Decisions. Vol 9.1, 79-87.
Pannell, D.J. (1997). Sensitivity analysis of normative economic models: Theoretical framework and practical strategies. Agricultural Economics. 16, 139-152.
This would involve winding down investment banking to focus on venture capital. A second option is to start a fund in Russia, with local partners there, to capitalize on that country's telecommunications market. The company could be split under the second scenario into three different divisions. The third option is to retain the status quo, which has generally been successful, but offers limited upside compared to the other options.
t is recommended that the first option be undertaken. There are a few good reasons for this. The third option offers limited upside. As the up-front cost of technology increase for telecommunications providers, Columbia's principles are going to be increasingly unable to meet the capital requirements. So this option is superior to the status quo. The investment banking option can be cut, but do not feel that it needs to be, especially when the second option involved hiring professional management to…
It is recommended that the first option be undertaken. There are a few good reasons for this. The third option offers limited upside. As the up-front cost of technology increase for telecommunications providers, Columbia's principles are going to be increasingly unable to meet the capital requirements. So this option is superior to the status quo. The investment banking option can be cut, but I do not feel that it needs to be, especially when the second option involved hiring professional management to run the investment banking arm.
The second option, overall, is too complex to be executed right now. Columbia has been successful because the principles have expertise the subject area and take a hands-on approach. They are the classic "value-added" venture capitalists, whose input dramatically increases the value of the investment. Operating in Russia or South America takes the principles outside of their comfort zones. Within a couple of days of this meeting, the risks inherent in Russia will become apparent, and even if the partners wanted to invest in Russia they would have scrapped the program on account of the financial crisis. South America, of course, had its own financial crisis in 1999.
The instability of the emerging markets, and the lack of familiarity of the principles with these markets means that they are taking on far too much risk. In addition, there are the risks associated with moving from a simple, flexible organizational structure to one characterized by complexity, joint ventures, uncertain chains of command and investments in businesses the principles have little experience with. Thus, the second option is too risky. Under the first option, the principles can make one or two strategic investments overseas to move slowly along the learning curve. It is recommended, therefore, that Columbia accept outside capital in order to facilitate growth, but also as retain control of the company and provide more opportunities to the younger partners.
In general, Product Development at Ford involves three major stages, all leading up to the manufacture of the vehicle: Plan, Design, and Verify -- then manufacture. To do this, though, functional areas need to manage costs, plan marketing programs, ensure that needed parts are available, plan manufacturing schedules, hiring (if needed), shift changes, and numerous other data (a/p, a/r, payroll, etc.). The model for Ford is:
(ource: Murthy and Desai)
Thus, on a daily, or ongoing basis, employees in numerous functional areas are able to pull up historical data on models, features, issues; find out stages of development for new models or new programs; chart advertising effectiveness using detailed database parameters, preplan tooling, resource, and supplier needs; access accounting and invoice functions, and, system wide, use the available information for appropriate levels of knowledge management (Maynard 2004).
By department, a needs analysis shows that each individual department has both similar…
Sources: Ford Motor Annual Reports: www.ford.com; http://online.wsj.com/mdc/public/page/2_3022-autosales.html ).
investment banker is a person working for an investment bank. Investment banks finance both public and private companies. They arrange for debt financing and they can help put together equity deals as well. A startup company will often seek partnerships with investment bankers in order to secure the financing needed to expand or to make acquisitions. Investment bankers do not normally work with companies that only have an idea.
The stock market is a secondary market where equities are traded. A company does not turn to the stock market per se to acquire capital. The company gets its equity financing from an investment banker, who may then place the shares on the stock market. The company only sees money from the issue of the stock -- the price on the stock market does not go to the company. Investors on the stock market, however, have votes on aspects of the…
South Coast Railway is evaluating a proposal for a five-year franchise from the UK government. This proposal would be to operate a high speed commuter rail service from 2018 to 2022. The following report will examine the financials relating to this decision, and the decision-making heuristic.
The decision at hand is essentially a capital budgeting decision. There are a few different ways to evaluate a capital budgeting decision. The most common is the net present value (NPV) technique. This relies on discounted future cash flows to make the decision. The principle behind the use of discounted cash flows is that money earned today can be reinvested, and because of that, a pound earned in the future is inherently worth less than a pound earned today. The value of future money decreases over time. The NPV method discounts those future cash flows back to present value, and compares then…
capital fall if financial markets are no longer segmented? What evidence is there of this effect?
Up until the mid-1940's markets where knows to be restrictive in cash flow movement, this in combination with tax and transactional barriers on ownership by foreign entities meant that equity markets were not developed. They were in fact marked with low liquidity, not enough regulation and inconsistent disclosures.
If capital markets are segmented, then investors can only invest domestically. This means that the market portfolio (M) in the CAPM formula would be the domestic portfolio instead of the world portfolio.
This equilibrium had banks, securities market and capital markets as the primary source of finance. The localized source of finance meant that domestic investors were they only players in the market with most shares, resulting in high cost of capital.
1970's brought on the liberalization of markets in the developed countries which resulted in…
Basak, Suleman. "An intertemporal model of international capital market segmentation."
Journal of Financial and Quantitative Analysis 31 (1996) 161-188.
Bekaert, Geert and Campbell R. Harvey. "Time-varying world market integration."
Journal of Finance 50 (1995) 403-444.
Capital orks seeks to explain the venture capital industry, debunk myths and offer a view of what the role of venture capital is to the U.S. economy.
Zider begins by explaining that venture capital does not provide as much money to start-ups as is often considered to be the case. In general, venture capital goes to follow-on funding for projects that were originally developed by governments or corporations. Those latter bodies perform the innovation task, and venture capital comes in once the product/service has been developed somewhat and needs to be taken to market. Because of this, venture capital is short-term money, not long-term. The objective of the venture capitalist is to commercialize an idea and then exit either by taking the company public or selling to a larger company. Venture capitalists exist, Zider points out, because this segment of the capital markets is underserved by other players. In that…
Zider, B. (1998). How venture capital works. Harvard Business Review. Nov-Dec 1998.