Hi - I had to review this video: https://www.youtube.com/watch?v=TrKVj_wLgUc I had to imagine the producers of this
Question:
Hi - I had to review this video:
https://www.youtube.com/watch?v=TrKVj_wLgUc
I had to imagine the producers of this video asked me to appear in the video to offer two additional considerations in capital budgeting decisions. One consideration must be quantitative (numeric). The other must be qualitative (non-numeric). I had to write script to describe capital budgeting considerations that I think are important for managers to consider. Here is my script:
When we talk about capital budgeting, there are a number of different way to do it.Payback period is the most simple but there are a few downsides to it.Unfortunately, payback period does not consider the time value of money.We know time value of money is basically money today is worth more than the same amount of money in the future because money today can earn interest that future money cannot.For example, a project cost $50,000 with a cash flows of $8,000 in year 1, $45,000 in year 2 and $5,000 in year 3 would have the same 2-year payback as another $50,000 project with cash flows year $52,000 in year 1, $1,000 in year 2 and $5,000 in year 3.If we use the payback period the projects look the same but with the time value of money, the second project is superior to the first.
Another thing to think about when funding a project is the customers and their culture.I have lived in Las Vegas for over five years, and when the MGM Grand was originally built, the entrance was a big gold lion that you walked through.As it turns out, that is considered bad luck in Asian cultures, and it turned away potential customers, so it was later changed to what it is today.
Let me know if you agree or disagree with my view of capital budgeting considerations. Is there further support you can offer on my consideration?
re Braddis2