The components of financial management Coursework

The components of financial management - Coursework Example Year Cash flow Discount factor Present value 0 (? 2m) 1 (? 2m) 1 (? 1.5m) 0.909 (? 1.3635m) 2 ? 1.0m 0.826 ? 0.826m 3 ? 1.3m 0.751 ? 0.9763m 4 ? 1.8m 0.683 ? 1.2294m 5 ? 1.3m 0.621 ? 0.8073m 6 ? 0.6m 0.564 ? 0.3384m ? 0.8139m The NPV of the project is ? 0.8139m. This is a positive amount and therefore is an indicator that the project can be carried on. Section II Associated risks of the project The risk associated with a project may be defined as the variability that is likely to occur in the future returns from the project. Risk arises in investment evaluation because we cannot anticipate the occurrence of the possible future events with certainty and consequently, cannot make any correct prediction about the cash flow sequence. In the context of capital budgeting projects, risk results almost entirely from the uncertainty about future cash inflows, because the initial cash outflow is generally known. These risks result from a variety of factors including uncertainty about future re venues, expenditures and taxes. Therefore, to assess the risk of a potential project, the analyst needs to evaluate the riskiness of the cash inflows. There are three possible attitudes towards risk that can be identified. These are: (a) Risk aversion (b) Desire for risk (c) Indifference to risk A risk averter is an individual who prefers less risky investment. The basic assumption in financial theory is that most investors and managers are risk averse. Risk seekers on the other hand are individuals who prefer risk. Given a choice between more and less risky investments with identical expected monetary returns, they would prefer the riskier investment. The person who is indifferent to risk would not care which investment he or she received. There are various risks involved in the project that have different degrees of consequences. Such risks may be categorized into technical risks, environmental risks, economic risks, political risks and project completion risks. (Horngren, Foster, & Datar, 2001) The risks that any project is predisposed can be avoidable or unavoidable and therefore a firm has to minimize the risks that face the projects it undertakes as much as possible. The project that is intended to be carried out can face the risk of errors in estimation. Such errors could disrupt the schedule of the whole project as a whole if the business and development teams do not work closely to curb such cases of errors. There is also the possibility that there can be a requirements overload whereby the requirements for the project are not well established and are therefore constantly being added later on during the development phases of the project. This disrupts the laid down schedule and delays the events of each step of the project. Lack of proper documentation of the project at the same time as the project progresses is also a risk that most projects face since critical information related to the project may be lost. PART B Section I Beck Bag Year Expected ca sh flows Accumulated cash flows 1 60,000 60,000 2 70,000 130,000 3 70,000 200,000 4 40,000 240,000 5 20,000 260,000 The project costs 200,000 and the amount is recouped in the third year, therefore the payback period is 3 years. Roo Bag Year Expected cash flows Accumulated cash flows 1 70,000 70,000 2 70,000 140,000 3 60,000 200,000 4 60,000 260,000 5 60,000 320,000 The project costs 260,000 and it takes 4 years to recoup this amount. Therefore the payba

Strategic Management Essay Example | Topics and Well Written Essays - 750 words - 12

Strategic Management - Essay Example A combination of competitive advantage and the various activities in Porter’s value chain enables the firm to attain an above average performance in the market. Cost leadership involves offering the goods and services to the consumers at a lower price as compared to the competition. The major goal of cost leadership is to provide consumers with the product at low prices and specific quality level. This approach ensures that, and the firm’s products are availed to the consumers at a price which is lower than that of the competition. Cost leadership is effective in the basic commodity industry such as pulp, tissue paper, food color and other basic products. Differentiation, on the other hand, emphasizes on quality which is the opposite of cost leadership. Differentiation aims at providing quality products to consumers at appropriate prices hence increasing the profits. Cost leadership and differentiation strategies can be achieved by organizing the five activities of Porter’s value chain model effectively. The two main ways in which cost leadership can be achieved through Porter’s value chain model include, the firm may choose to lower the cost of the various activities in Porter’s value chain model or reconfigure the activities in the model to minimize cost. An analysis of the cost of the various value chain activities is done by allocating cost to each of the activities in Porter’s Value Chain. The lowest cost obtained on each of the value chain used in the production process ensuring low-product cost. Cost advantage can also be achieved by reconfiguring the activities in Porter’s Value Chain model. This involves implementing structural changes such as the production process, new procurement and distribution process and adopting a new sales approach. The process of reconfiguring the value chain model activities is done to ensure low cost of production, marketing, distribution and purchasing from the