TIME VALUE OF MONEY AND CAPITAL BUDGETING
If you were to think about your personal life in the way a financial manager would think about their professional decisions, how do you think you would you approach some long-term financing decisions? For example, if you were gifted $30,000, would you consider how to get the best return over a 5-, 10-, or 20-year period? How might these concepts apply when trying to decide between buying a new car, fixing a current car, leasing a car, and buying a used vehicle? In the Week 6 Discussion, you focused on an organization with which you are familiar and identified some of the organizations short-term financing needs. In this weeks Discussion, you will turn your focus to long-term financing needs for the organization.
RESOURCES
Be sure to review the Learning Resources before completing this activity.
Click the weekly resources link to access the resources.
WEEKLY RESOURCES
To prepare for this Discussion:
Thinking back to the organization you examined in the Week 6 Discussion, pinpoint at least one capital investment for which the organization will need to secure financing in the coming fiscal year (e.g., perhaps the company wants to invest in a warehouse in China, leading to an increase of 8% in profits). Note: This could be based on an actual situation, or you may use your creativity to create a possible project for the organization. Be prepared to provide some details about the project (i.e., purchase of equipment, acquisition of another company or property to expand operations, how much money will be required and for what purposes, etc.).
Also, if you were a manager involved in decision making about this capital budgeting need, consider what questions you would have about the companys financial position before engaging in this type of investment.
Review the time value of money (TVM) concepts and consider the potential risks and benefits to the organization of engaging in such a project.
BY DAY 3
Post a summary of the value of a capital investment project for your selected organization using time value of money concepts. In your summary, do the following:
Identify at least one capital investment for which the organization will need to secure financing in the coming fiscal year and provide a brief description of the project (type of project, estimated costs and allocation of funds, etc.). Note: This could be based on an actual situation, or you may use your creativity to create a possible project for the organization.
Identify what questions you would have, as a manager, about the companys financial position before engaging in this type of investment.
Using the concept of time value of money as the basis for your explanation, propose why the capital investment would or would not be of value to the organization at this time.
