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Building a model for capital investment decision

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Cash Flow valuation Need assistance understanding the problems in excel with formulas.

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This post solves 8 problems related to capital investment decision making including scenario analysis and decision tree.

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Key Principles of Financial Managements

You have recently been appointed as the senior management accountant in a large listed company, XYZ plc which has divisions in a number of countries and trades globally.

You have examined the financial management procedures of XYZ plc and have had discussions with the board of directors of the company. In doing so you have identified the following key areas which need to be addressed:

1. There is little understanding of the role and nature of financial management amongst the other directors and senior managers and you feel that this limits their ability to make sound decisions regarding shareholder wealth maximisation.

2. There appears to be no strategy behind the management of the sources of capital in the company and little understanding of the need to manage the cost of capital.

3. Large projects seem to be undertaken with little or no formal investment appraisal.

You are required to produce a report to the board of directors explaining the key principles and concepts in the above areas and discuss models and techniques by which the company may improve performance.

The report should include critical evaluation of the models and concepts proposed outlining their merits and limitations. You may incorporate logical assumptions with regard to the company and use numerical examples to illustrate the models and concepts that you propose to adopt.

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