Essay about Business Finance and Marketing

Essay about Business Finance and Marketing

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Capital investment decisions aim includes allotting the capital investment funds of the firm in the most effective manner to make sure that the returns are the best possible returns. Researchers indicated that there are basically four methods that have been used in practice which are Payback Period (PP),Internal Rate of Return (IRR),Accounting Rate of Return (ARR) and Net Present value (NPV) used by firms to evaluate investment opportunities throughout the world (Atrill & Mclaney, 2008). The Net Present Value (NPV) and Internal Rate of Return (IRR) methods are considered to be discounted cash flow (DCF) methods. The Payback Period (PB) and Average Accounting Rate of Return (ARR) methods are so-called non-DCF methods (Hermes, Smid, and Yao, 2006).

The time required to achieve the payback is termed the payback period (PP). Under the payback method the required payback period sets the hurdle rate (threshold barrier) for project acceptance. (Lefley 1996) The payback method is generally used as a comparison of two or more projects and has a wide acceptance as a rule of thumb. In a survey in India, Cherukuri (1996) analysed that payback was widely used as a “supplementary decision criterion”.

The internal rate of return (IRR) is the discount rate often used in capital budgeting that makes
the net present value of all cash flows from a certain project equal to zero. This in essence means that IRR is the rate of return that makes the sum of present value of future cash flows and the final market value of a project (or investment) equals its current market value (Stefan Yard 1999). The higher a project’s internal rate of return, the more desirable it is to undertake the project.

The performance of a firm is often assessed by ...

... middle of paper ...

...initially so that the young company’s scarce sales and marketing resources can be properly focused.

Factor analysis of the results indicates that venture capitalists appear to assess ventures systematically in terms of six categories of risk to be managed. These are: risk of losing the entire investment; risk of being unable to bail out of necessary; risk of failure to implement the venture idea: competitive risk; risk of management failure; and risk of leadership failure (Macmillan, Siegel, and Narasimha, 1985). MacMillan et al. (1987) pointed out five similar types of risk which are management risk, competitive exposure, inexperience risk, viability risk and cash-out risk. Cresswell (2004) listed four risk factors that can impact investment decision process; politics and policy factors, organizational factors, business process factors, and technology factors.

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