Capital Budgeting of Pevensey PLC Essay Example | Topics and Well Written Essays - 1750 words

Capital Budgeting of Pevensey PLC - Essay Example The present research has identified that Capital Budgeting is an important process for any organization. No organization can make good use of their money, unless they plan, decide and assess the best use of money. Good investment decisions maximize the earning potential of an organization and help boost the firm’s overall financial position and financial health. Good financial decisions are not intuitive. They require a lot of effort and financial planning. Many firms employ people with excellent financial knowledge and skills just to enhance the use of money. These people often lie at an important level of organizational hierarchy and given a title of CFO or Chief Financial Officers. Many firms, over the years, have realized the importance having people with good financial skills and have given these people more power and authority than the CEOs. As a result, these people are consulted every time a need arises for an organization to make a good financial decision. This good f inancial decision regarding the best machine is going to improve the asset earning potential for the firm and it is also going to improve the asset turnover and return on assets ratios. Pevensey PLC is a growing company. It needs to decide on the best option of a machine purchase. Currently, the company has four different options to ponder upon. It is good for the company to use financial tools of capital budgeting to appraise each of the four options before making the purchase. This will reduce the chances of a bad decision, and will put the company in a win-win direction. Hence, the company has done the right thing by consulting someone with the financial knowledge to look at the available options and deciding the best option for the purchase (Brigham & Ehrhardt 2010). This would ensure that the best purchase is made in the given budget. The best purchase will not only be the cheapest method, but the best purchase is also going to improve the overall financial position of the orga nization in the long-run. ASSESMENT METHODS: Capital budgeting is considered to be a specialist field. The methods used that are used to determine the best option to purchase are net cash flow method, discounted cash flow method, Payback period, NPV and IRR. No one method can alone be a good guide for the company for the best decisions. All of these methods have to be studied and used in congregation for giving the best answer to the company. This would ensure the best purchase is made in terms of returns, time value of money and cost of capital. The company can raise capital at a rate of 8 percent. This means that any of the option chosen must provide a return of at least 8 percent for the company to break-even. If this is not the case, the company will be losing money in real terms. It might be making money in nominal terms. Nominal and real returns are different. Nominal returns do not take into account the inflation rate and the cost of the capital to the company. Real returns t ake into account the cost of the capital that the company has to pay for obtaining the finance needed to make a purchase. The methods used in the report would help us calculate both the nominal returns and real returns to decide the best Machine to purchase that would maximize not only the firm’s cash flow, but will also the allow the firm to earn decent rates of return. The first method used to calculate the

Company Analysis Paper Essay Example | Topics and Well Written Essays - 1000 words

Company Analysis Paper - Essay Example Dell has been successful in the computer industry while other companies such as Sony and Toshiba have not made as much as Dell. In the computer industry the products that are produced have a very short life cycle and for this reason products quickly become obsolete. Toshiba and Sony have only tried to make a steady supply of their products but in the computer industry this is not very important, what is important in the computer industry is flexibility. Flexibility means that a volume of one product is supplied quickly and when there is a change in technology a company must switch quickly and offer the new product to the market.1 Dell has succeeded in changing their products when a new technology emerges. This is followed by a well organised supply chain where products are offered in the market, for this reason therefore Dell has been successful due to their quick adoption to new technology that emerge in the production of computers and computer products. The other reason why Dell has been successful is the adoption of a sophisticated supply network, Dell products are shipped directly from the supplier to the end customer, customers will only order their products and they are directly delivered to them, this has ensured a very effective supply chain which has led to the success of Dell, its competitors like Toshiba and Sony have not adopted such supply networks and for this reason they have not been in a position to succeed in this industry.2 Performance measures in the computer industry: Performance measures are those indicators that help a company to define and measure the progress of the company, the computer industry has come up with benchmarks to measure performance, the Raw speed is one of benchmark used to measure performance in this industry, it is a measure from SPEC which stands for standard performance evaluation Corp, this benchmark measures the central processing unit, however this measure does not consider how fast data can be retrieved from the hard disk and this measure is complicated. Another test checks the CPU integer performance. This means checking how the CPU handles simple tasks, the other measure is the SPECINT95 which checks how the product handles complex mathematics. Another performance measure is the graphic performance benchmark, it is aimed at measuring how fast computers will run graphic intensive applications, and the graphic performance measure is provided by the GPC which stands for Graphic performance committee. Project two: SWOT analysis: Strengths: Strength of the Dell company is that the company offer customised products to its consumers, the company products are built to order, the customer orders and he or she is shipped the product, for this reason therefore the customer gets what he or she wants, this is a strength through which the company is able to communicate with its customers and they are able to understand their needs which is a key to success in every business. The other strength is the introduction of internet order of products, customers order through the internet which enable a swift and improved distribution process, this also enables the expansion of value added services, through the introduction