Capital budgeting techniques: Sensitivity and Scenario analysis

Capital budgeting techniques: Sensitivity and Scenario analysis Graphically show and explain the following terms, how you could link them to capital budgeting techniques in your decision making (1000 words) Sensitivity analysis Scenario analysis Sensitivity Analysis Sensitivity analysis is a ‘what if’ tool that examines the effect of increase or decrease in a company’s net profit. Sensitivity analysis can help in answering question like ‘What would be the forecasted net income if sales are increased or decreased by 30%, 20% or 10%. Sensitivity analysis is frequently used in capital budgeting for determining how sensitive an NPV analysis is to changes in variable assumptions. While conducting analysis, each variable is fixed except one and by changing this one variable, the effect on NPV or IRR can be viewed. The first step in performing a sensitivity analysis is building a base case scenario. This is typically the NPV using assumptions which are believed to be accurate. From this point various assumptions can be changed which had initially been based on potential assumptions. NPV is then recalculated and the sensitivity of NPV based on the change in assumptions is determined. Scenario Analysis Scenario analysis is a process of analysing decisions by considering alternative possible outcomes. Scenario analysis is designed to see the consequences of an action under different set of factors. Scenario analysis takes sensitivity analysis a step further. Rather than just looking at the sensitivity of the NPV analysis to changes in the variable assumptions, scenario analysis also looks at the probability distribution of the variables. Like sensitivity analysis, scenario analysis starts with the construction of a base case scenario. From there other scenarios are considered known as the ‘best case’ and ‘worst case’ scenario. Probabilities are assigned to the scenarios and computed to arrive at an expected value. Capital Budgeting and Use of Sensitivity and Scenario Analysis Capital budgeting is the process of analysing a company’s investment decisions such as investing in new equipment, machineries, plants, projects and products. This process involves the estimation of the expected cash flows, the calculation of the Net Present Value (NPV) and the calculation of the Internal Rate of Return (IRR) of the investment. NPV is defined as the present value of all cash inflows minus the present value of all cash outflows. If NPV is positive, the investment is making money and is thus viable. IRR is defined as the discount rate that makes the NPV zero. If IRR is greater than the opportunity cost of capital then the investment is feasible. There are two obstacles involved in the capital budgeting process. One involves the correct estimation of expected cash flow. The other is the use of correct discount rate also known as the project cost of capital. Capital budgeting is by definition, forward looking. When dealing with expected resources and demands, uncertainty is a major factor. Sensitivity analysis is a statistical tool that determines how consequential deviations from the expected value occur. Capital Budgeting example XYZ Water Filtration Plant needs to construct a new water filtration plant to filter 20 million litre water and deliver to consumers. An assessment should be carried out to evaluate the economics of the project and determine which parameter is sensitive to investment value, also to establish a sales price. Market price of water is $4 $5 per litre therefore, four different water price scenarios would need to be analysed to reach the best economic parameter, they are: $4, $4.25, $4.5 and $4.75. The selection criteria would be based on: NPV Cost of Capital 15% IRR Analysis and Comparison of Alternatives Preliminary data and estimation Table 1: Project Information Table 2: Baseline Cash flow calculation Baseline cash flow and NPV are calculated as follows: Table 3: Sensitivity Analysis Calculation In sensitivity analysis, each variable is changed one at a time to analyse its impact on the end result. In this case the impact of 10% increase or decrease in revenue, capital investment and operational cost is considered on the NPV. From table 3, a sensitivity graph can be plotted as follows: Based on above sensitivity analysis, it is evident that the revenue by terms of price is the main variable that is affecting NPV. Hence the economic optimization and evaluation will be based on parameter water price. Using formula in the spreadsheet, following can be obtained: Table 4: Water Sales Price Scenario Selection of preferred alternative From table 4, we can conclude that best scenario is at water price $4.74 per litre, refer to criteria NPV, IRR and Payout Time. Then the project is worth doing, with the water price $4.75 per litre resulting NPV>0, IRR>MARR and payout time less than five years. Benefits of using Sensitivity Analysis Sensitivity and scenario analysis in useful in capital budgeting techniques for a number of reasons, including: It supports decision making or the development of recommendations for decision makers such as testing the robustness of a result. Financial model makers can effectively communicate with the decision makers for example, by making recommendations more credible, understandable and compelling. Increases understanding of relationships between input and output variables. It helps the investor to maintain their risk comfort level. Once projections are made concerning a specific investment, it can be decided whether risk should be taken for the worst case scenario. SOURCE http://businessplanhut.com/what-sensitivity-analysis-example-and-components-involved Source: Boundless. â€Å"Scenario Analysis.† Boundless Finance. Boundless, 03 Jul. 2014. Retrieved 27 Apr. 2015 from https://www.boundless.com/finance/textbooks/boundless-finance-textbook/the-role-of-risk-in-capital-budgeting-12/scenario-and-simulation-assessments-99/scenario-analysis-427-7232/ http://www.assakkaf.com/courses/ence 627/lectures/chapter5.pdf http://www.spreadsheetml.com/finance/capitalbudgeting.shtml http://www.slideshare.net/ranasingh0820/sensitivity-amp-scenario-analysis https://kristal2011aace.wordpress.com/2011/09/22/w2_adi_the-gas-plant/#comments

Technology in the Classroom Essay example -- Education Teaching

Technology in the Classroom Almost every single occupation in today’s working world is impacted by technology in one form or another. As I have grown as a person and a student, I have noticed the obvious impacts and changes technology is taking on in education. These changes and impacts are both positive and negative to the children, young adults, and adults who are pursuing technological opportunities. In The Art of Fiction, John Gardner said, â€Å"The business of education is to give the student useful information and life-enhancing experience, one largely measurable, the other not†¦Ã¢â‚¬  One of the main reasons technologies are becoming so popular in today’s education is because it is introduced to children at any earlier age than every before. â€Å"Ninety-nine percent of all elementary and secondary schools in the United States have installed computers.†[1] Students are encouraged to research by using the internet for book reports, making banners or signs for science fairs, and typing their paper for an essay. I believe it is important for students to be introduced to this at an early age. I also believe that they get a well grounded understanding of the â€Å"important† reasons to use a computer. So many children get caught up in games, email, chat, and music because they may spend too much time on a computer. These things are okay to an extent, but they should really learn from an early age the true importance of technology in education. Technology is a major focus when discussing the ways to improve schools in the future. Because students are now becoming extremely educated when it comes to technology, school districts are now making it mandatory for teachers to be knowledgeable when it comes to technology, no mat... ...d not just be exposed to computers and the internet without some simple base knowledge. They need to understand the dangers that chat rooms, email, and â€Å"free† sites can have. Along with students, teachers and professors should be aware of what their students are accomplishing while using these various forms of technology. Not only will technology in the classrooms benefit their users in the present, but it will aide them when finding a job in the future. Technology is such and important part in education and it is only getting stronger. [1] Computer Confluence George Beekman Pg.419 [2] A Vision for Technology in Education http://www.nsba.org [3] Will Technology Really Change Education? Authors: Todd W. Kent and Robert F. McNergney 1998 http://www.ecsu.ctstateu.edu [4] http://nces.ed.gov [5] Computer Confluence Author: George Beekman Page 426 Technology in the Classroom Essay example -- Education Teaching Technology in the Classroom Almost every single occupation in today’s working world is impacted by technology in one form or another. As I have grown as a person and a student, I have noticed the obvious impacts and changes technology is taking on in education. These changes and impacts are both positive and negative to the children, young adults, and adults who are pursuing technological opportunities. In The Art of Fiction, John Gardner said, â€Å"The business of education is to give the student useful information and life-enhancing experience, one largely measurable, the other not†¦Ã¢â‚¬  One of the main reasons technologies are becoming so popular in today’s education is because it is introduced to children at any earlier age than every before. â€Å"Ninety-nine percent of all elementary and secondary schools in the United States have installed computers.†[1] Students are encouraged to research by using the internet for book reports, making banners or signs for science fairs, and typing their paper for an essay. I believe it is important for students to be introduced to this at an early age. I also believe that they get a well grounded understanding of the â€Å"important† reasons to use a computer. So many children get caught up in games, email, chat, and music because they may spend too much time on a computer. These things are okay to an extent, but they should really learn from an early age the true importance of technology in education. Technology is a major focus when discussing the ways to improve schools in the future. Because students are now becoming extremely educated when it comes to technology, school districts are now making it mandatory for teachers to be knowledgeable when it comes to technology, no mat... ...d not just be exposed to computers and the internet without some simple base knowledge. They need to understand the dangers that chat rooms, email, and â€Å"free† sites can have. Along with students, teachers and professors should be aware of what their students are accomplishing while using these various forms of technology. Not only will technology in the classrooms benefit their users in the present, but it will aide them when finding a job in the future. Technology is such and important part in education and it is only getting stronger. [1] Computer Confluence George Beekman Pg.419 [2] A Vision for Technology in Education http://www.nsba.org [3] Will Technology Really Change Education? Authors: Todd W. Kent and Robert F. McNergney 1998 http://www.ecsu.ctstateu.edu [4] http://nces.ed.gov [5] Computer Confluence Author: George Beekman Page 426

Philosophy of life Essay

In the process of growing up, I have learned that there are an infinite ways to look at how you want to live life and how others live it. When I was young I allowed for my parents to control and greatly influence my beliefs and throughout the years I even allowed my friends to do so as well. Now that I am older I have very different views of life and am only influenced by one source. I’m sure that just like me others around the world also believe the same thing. Nowadays people can even get a degree in philosophy and interpret many ways on how humans should interpret the way we live and life itself and how it came about. Regarding what I have mentioned above, I think that now as a grown up I have lived many experiences in order to form my own philosophy of life. About 3 years ago I was introduced to the Seventh Day Adventist Church. I did research on everything I was being told and history itself proved the bible’s words to be true. I learned many things from the bible and I believe they have made me a better person because of the guidance it has taught me. I strongly believe that most of what is taught by the SDA church I can trust and apply it to my life. Most of it comes the word of God and that is why I feel I can trust it. God is the main source of the philosophy of life I have. The main thing I take from God is his commandments. I base the 10 main commandments he has given this world to my life every single day. I live by them and I like that they always help me out in feeling good about myself and just being good. In my life I have always felt the desire of spiritual growth but I could never find it especially not while I was in a church where the truth was hidden. Finally when I learned about God the way the SDA church taught it I knew I was ready to begin my spiritual growth. see more:personal philosophy of life I feel that by taking the values presented to me by God, I can be sure to live by them every single day of my life until I die. Many things have become clear to me and I’m not scared of what lies ahead in the future for me. I have learned to respect all cultures, religions, and beliefs. Although I may not accept them to be completely and entirely true, just as they would to me, I know that because of my own beliefs they also have the right to be free and believe what they want. I think free will is one of the main aspects of this philosophy and I analyze it every day I live by viewing the people around me. Since the beginning of time people have always had a choice whether to things one way or the other way. Even though there have been people trying to control that freedom, there could have been ways to prevent it merely by just choosing to go against them. I think that by understanding free will is why I am able to cope with others and be able to relate to them much more. Now that I go to a very diverse university I have realized that it is not so hard to live in harmony. I am okay with all these cultures and backgrounds that are found here at the university. Many of my friends here at Cal State are Muslim and follow Islam, a religion very different from mine and yet very similar in some ways. My Muslim friends have seen the way I view on how to live and before they knew I was a Christian believer, they assumed I was Muslim because of the way I lived my life. I think that because I base my life to live it the way God put it down to me is the philosophy most religions also want to follow. I’m glad that people can relate it to them and actually think my philosophy of life is very similar to them. Even though I don’t base my philosophical views on the peers around me I still feel I can easily relate to them. My values are solely based of God’s word and I do not mind the people who think I am obscured for doing that. This goes back to the concept of free will, they can either choose to accept it for good reasons or reject it for bad reasons. The future that I want with this philosophy is so that I can create a peaceful environment for me and those who also value the same philosophical views as me. So far I think I have been able to accomplish that with the peers around me. My friends also notice that because of my views I am able to be a better person. I think that this is the most important thing I could ever accomplish. With the believe that every person is prone to do evil in this world, being able to show people that I am a good person is amazing. The reason that I live a very good life right now encourages me to share the same philosophy to those of my friends who do not follow it. I understand that they can reject it and not want to even consider it. It is a tough thing to do but because we are all free to choose how to live our lives I am just satisfied that I can share the way I can live my life. I thank God every day for giving me the opportunity to live the way he wanted me to live. Every day that I live this way, I am sure that I am pleasing the only important being in my life which is God and is the one who gave it to me. God is the only important subject in my life and I wouldn’t want that to change at all. I love the way I live life and although I am not sure how long I will live, until its end I wish to live it this way. My philosophy of life lies within in the commandments of God and no one can ever change that, no matter how hard they try.

Absence Of In Depth Studies On Cultural Competence - Free Essay Example

Sample details Pages: 7 Words: 2131 Downloads: 8 Date added: 2017/06/26 Category Business Essay Type Analytical essay Did you like this example? In this global society, Culture has gradually seeped into our everyday lives where it is almost impossible to avoid culture. Companies like multi-national organizations are required to apprehend every aspect of the local national culture which they are operating or selling their products in. David Harrison has highlighted that there are 3 key trends that promise to shape and change the economic landscape well in the 21st century; (1) continued globalization of business (2) enhanced information technology and (3) increasingly diverse workplace (Harrison, 2000). Don’t waste time! Our writers will create an original "Absence Of In Depth Studies On Cultural Competence" essay for you Create order This further explained the importance of cross cultural awareness between the national level, industrial level, organizational level and individual level. Statistics have shown that 51 out of the 100 largest economies in the world are corporations and the top 500 multi-national organizations justify for 70% of the worldwide trade and this phenomenon have been stealthily increasing throughout the years (WTO, 2003). With the increasing encouragement for globalization in business ventures, companies can now search for cheaper and better raw materials globally. Nonetheless, by venturing out into the international borders, it is unavoidable that one needs to interact with the diverse culture of different nations. A case study have shown that the lack of cross cultural awareness have caused Tiz Razor, a manufacturing firm operating with British license to encounter cultural challenges in the Qatari Market. Tiz Razor in local languages would mean sharp and they have enjoyed good customer acceptance with its sharp image. In the mid 1980s, Tiz Razor was encouraged to mount an export drive due to the government foreign currency deficit (consequences of war with Iraq). The next target segment would be Qatar the next richest and nearest country from Iran. Qatar is a part of the United Arab Emirates which uses Arabic alphabet. However, the products were not very well received with the customers. It is later known that Tiz, the Persian brand name in Arabic slang is referred to Passing wind( Tevfik Dalgic and Ruud Heijblom, 1996). The above example has further proved and emphasizes the importance of cross cultural awareness between the different nations. Despite the escalating volume of academic research on cultural issues in international business, firms appear not to be doing sufficient to prepare their managers for the international business environment (Apud et al. 2006). Cultural differences, while difficult to observe and measure, are obviously very important (Pan kaj Ghemewat, 2010). According to Pankaj Ghemewat, culture is defined as a set of shared values, assumptions and beliefs that are learnt through membership in a group, and that influence the attitudes and behaviors of group members which Geert hofstede defines as a process of collective programming of the mind. It is further explained that some cultures put more emphasis on universal commitments (like honesty) and others put more weight on loyalty to particular people and relationships. Given the apparent importance of cross cultural awareness in this global market, literature reviews have shown 4 surprising results (James P. Johnson, Tomasz Lenartowicz and Salvador Apud, 2006) that there are a: Lack of agreement of what constitutes to cultural competence. Absence of in-depth studies on cultural competence. Studies on cultural competence in International Business tend to ignore the larger environment which operation managers operate in. Broad coverage of cultural compete nce only in US Research Aim To investigate and understand the effects of cultures on the business environment Research Objectives To understand the cultural differences between Western and Eastern To explore the possibility of cultural differences affecting business interest To identify the determinants that cause conflicts between different nationalities To investigate different methods of minimizing cultural conflicts Research Process Philosophy of research The different philosophy of Positivism, Interpretive and Critical realism, the most appropriate strategy in researching cultural differences is through critical realism. Realism is based on the belief that a reality exists that is independent of human thoughts and beliefs. It can also be seen as a large scale social forces and processes that affect people without their necessarily being aware of the existence of such influence on their interpretation and behavior (Mark Saunders et. al, 2003, Pg 84,85). Edgar Schein definition of culture could be applied based on that deeper level of basic assumptions and beliefs that are shared by members of an organization that operate unconsciously and define in a basic taken for granted fashion an organizations view of its self and its environment. (Edgar Schein,1985). Given cultures ambiguous nature, the end results are subjective, undefined and determined by external forces while interpretivisim acknowledge peoples experience following by how things behave(Laing 1967:53) Approaches A deductive approach would not be chosen as it is time-consuming. In the social and economic sciences environment, extreme deductive would lead to an endless rejection of theories because simply none of them is able to grasp the full complexity of the system described(Koen.P et. Al, 2007). In contrary, an inductive approach to research culture would be appropriate in such situations; as it is the process in which you would collect data and develop theory as a result of your data analysis(Mark saunders et al, 2003, pg85-87). Instead of testing the theories, the paper would focus on building on to theories such as the 6 dimensions of culture by Geert Hofstede and the 3 levels of culture by Edgar Schein. Easterby-smith et al. (2002) suggest 3 reasons to the usage of an inductive approach; (1) informed decision making can be made about the research design which is more than simply the methods by which data are collected and analyzed. (2) Providing inspiration of which research appro aches would work best in the research process and (3) the knowledge of the different research traditions would solve your constraint on adapting to the research design to cater for constraints. Research Methodologies Case study One of the best methodologies to be used would be case studies; it is a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence (Robson 2002:178). Case studies introduce the concept for generating and testing theory, providing a strategic management team with ground breaking insights (Penrose, 1960; Chandler, 1962; Pettigrew, 1973; Burgelman, 1983). It is argued that case studies are usually carried out in close interaction with practitioners, dealing with real management situations which could represent a methodology that is ideally suited to creating managerially relevant knowledge(Amabile et al., 2001; Leonard Barton, 1990). This has fulfilled the research objectives of comparing between different nationalities using real life examples that underline theories and discovering the key to minimize cultural conflicts. Interviews The use of intervi ews would be necessary to find out the determinants of the conflicts. Discussing about conflicts may be sensitive for some individual, thus an interview with them would be appropriate. Individual interview can often provide in-depth context, stories and discussion related to one or more topics (WBI evaluation, 2007). It is important for the interviewer to find a peaceful environment where the Interviewer can ask for elaboration or explanation with follow up questions(WBI evaluation, 2007). The respondent may also appreciate the additional personal attention that the interviewer can offer in opposed to a survey or focus group(WBI evaluation, 2007). Limitations Despite the validity of case studies, Yin(1984) have argued that there are 3 disadvantages; (1) case studies often lack of rigor as too many times, the case study investigator has been sloppy, and has allowed equivocal evidence or biased views to influence the direction of the findings and conclusions (2) Case studies pro vide very little basis for scientific generalization since they use a small number of subjects, some conducted with only one subject. (3) Case studies are often labeled as being too long, difficult to conduct and producing a massive amount of documentation (Yin, 1984) . Yin (1993) considered case methodology microscopic because of the limited sampling cases that may lead to an inaccuracy of data. Likewise for interviews, due to the complexity and great detail involved, it is usually time-consuming as each respondent would require 30-45 minutes to answer those questions, in addition of organizing and comparing the data would take up even more time. There is also an underlying question in terms of validity as researcher would not be able to know if the respondents are lying. In the case of interviewing different nationalities, there is a possibility that there is a miscommunication due to language barriers between the different countries. Operation of Methods Case Study The first step in deciding which case study to use is determined by the countries which should be explored. Yin(1984) has proposed to use the 6 step in using case study: Determine and define the research questions Select the cases and determine data gathering and analysis techniques Prepare to collect the data Collect data in the field Evaluate and analyze the data Prepare the report As mentioned in the research objective to understand the significant cultural differences between the western and the eastern, 2 case studies were chosen; Danone Vs Wahaha and Nissan Vs Renault . The 2 case studies showcased France which belongs to the western culture, China and Japan which belongs to the eastern culture. A framework of Geert Hofstedes 6 cultural dimensions will be used to differentiate and compare distinctly between both very extreme opposite cultures. Beyond the case studies, Edgar Scheins 3 levels of culture can be used to analyze the different ele ments of culture. Interview Referring back to the research objective, exploring how cultural difference between the eastern and western culture could cause conflicts and whether the diversity of culture creates a rife of creativity and efficiency that results in better business interest for the company. In this interview process, the sample size would include 4 sales and marketing personnel aged ranged 25-30 each from the western and eastern country. Argumentatively, the sales marketing personnel could provide abounding relevant information; since they are the ones that formulate creativity and profits for the company. Scheduling a timing slot for a Skype interview is required as respondents do not reside in the same local country. During the process, the session will be divided in accordance of scheduling the first 4 western employees for interview in the 1st week and the following 4 eastern employees in the next week. Scheduling interviews in different weeks allows time to organize and analyze the data given. An example of the interview question will be provided in the appendix below. (Exhibit 1.1) Analysis of Data (Coding) In the analytical process, Open coding would be used which is essentially the first stage of the process of qualitative analysis (Mark. P, et al, 2003, pg 399,340). This is where the data is collected and grouped into conceptual units followed by being given a label for each unit. The same label would also be given if similarities of data were found. The emphasis in this grounded theory approach will be used to derive meanings from the subjects and settings being studied In the case studies provided, the researcher needs to identify and label data which is important, followed by finding similarities of data between both cases of Danone Vs Wahaha and Nissan vs Renault. Conjointly, the interview data from each of the western side and the eastern side, similarities of the data should be found and labelled accordingly. The process of looking for relationship between the categories of data that have emerged from open coding could be explained as axial coding. Axial coding indicates t he process of the theoretical development as they are rearranged into a hierarchical form with the emergence of subcategories Finally, the process would go through Selective coding where there is already a developed a number of principal categories and related subcategories. This is when identification of one most important subcategory as a core category and integrate them into the research in order to develop a grounded theory (Strauss and Corbin 1988). Conclusion Culture has always been a essential element yet sensitive topic; riots may occur as a result of not handling the cultural differences well. A potentially successful business ventures may backslide where there is an absence of cross cultural awareness. With the advancement of globalization seen worldwide, it is even much more important for companies to grasp the understanding of each different national culture. Even with mounting volume of research about cultural differences, cultural conflicts still remain in todays society. Further research should be performed to know much more in depth about the ambiguous nature of culture. In order to fulfil my research objectives, 2 main methodologies were used. Case studies are used to compare the differences between the western eastern while Interviews are used to identify the determinants of conflicts and ascertain methods to solve cultural conflicts. After the data is collected, it will have to go through the process of open coding in o rder to analyze the data given. With a good analysis of data, this will allow us to build on the theory and let us gain a further insight of culture which is essential for businesses in the future. By grasping culture into our understanding, we may be much more prepared for what the future may bring us.