Explain the techniques to evaluate investments and decide which projects to pursue. How do you formulate decision rules and compare decisions based on these rules to decisions based on the NPV rule.© BrainMass Inc. brainmass.com October 17, 2018, 3:13 am ad1c9bdddf
The techniques to evaluate investments and decide which projects to pursue. How do you formulate decision rules and compare decisions based on these rules to decisions based on the NPV rule.
The techniques to evaluate the investments are:
Payback period: This period is the number of years required for cash inflows to recover the original investment.
The actual payback period can be compared with the predetermined payback period. If the actual payback period is lesser or equal to expected payback period, then the project can be accepted. Otherwise, the project can be rejected.
Net present value: This is the difference between the present value of cash inflows and the present value of cash outflows.
If the present value of cash inflows is more than the present value of cash outflows, then it results in positive net present value and the project can be accepted. On the other hand, if the present value of cash inflows is lesser than the present value of cash outflows, then the project will ...
The solution explains techniques used to evaluate investments. An analysis of how to formulate decision rules and compare decisions based on these rules is given.
Analyzing Capital Investments
Visit the website of Johnson Controls Inc. located at http://www.johnsoncontrols.com, and review its 2012 financial forecasts.
According to the forecasts, Johnson Controls will increase capital investments to approximately $1.7 billion. More than 70% of the company's capital expenditures in 2012 are associated with growth and margin expansion opportunities.
1. Suggest a methodology to supplement the traditional methods for evaluating the capital investments of Johnson Controls int he emerging markets to reduce risk providing a rationals of how risk will be reduced.
2. Assess the potential impact of inflation on planned capital investments in CHina and examine approaches for an accurate evaluation of the investments. SUggest how this knowledge may impact management's decisions.
3. Contrast the modifications you would make in evaluating the projects to increase internal capacity in North America to evaluating expansion projects in the global market and how this information will impact the decisions made related to expansion.
4. Examine the benefits of using sensitivity analysis in evaluating the projects for Johnson Controls and how this approach can provide a competitive advantage for the company.View Full Posting Details