In other areas of this module, we consider analytical tools and techniques applied to capital budgeting decisions. In this discussion activity, we look at the functions of capital budgeting in both for-profit and non-profit organizations to become better acquainted with the complexities of each. In the process of determining the net effect of allocating resources to projects, firms create expectations regarding success of projects. These expectations translate into earnings forecasts that are closely watched by investors, and have funding ramifications, particularly if assumptions prove to be incorrect. Thus, firms generally investigate elements of the decision-making process which might have a disproportionate effect on outcomes, and the document a range of possible outcomes.

We see in required readings and in this discussion that forecasts can be particularly vulnerable to assumptions. We also find that firms may limit access to capital markets, which will force a firm to ration capital, limiting the firm's activities (Kaplan and Grossman, 2010). We will see that many of those factors which characterize the modern corporation disadvantage non-profit entities. You may also notice that that planning reduces certain forms of risk, but not others (Connerly, 2013). You will consider these issues in this discussion activity.

When preparing for your discussion posts for this module, it is recommended you read the prompt several times. Read it the first time to familiarize yourself with the case. On the second reading, look deeply at the details you are to discuss: facts, problems, organizational goals, objectives, policies, strategies. Next, read all required readings listed below, plus any optional readings that you wish to take advantage of. All will assist you in providing a substantive, detailed post which appropriately incorporates the concepts, theories, tools, and research needed to address the issues presented here with sufficient depth to qualify for full points.

Complete any research and analysis to support your decisions and make recommendations, prior to engaging in the discussion. One foundation post and two responsive posts (3 posts in all) are required. Defend your analysis and comment on peers' analyses utilizing assigned readings (Chapters One through Nine - including only chapters included in assigned readings - of Fundamentals of Corporate Finance, focusing on Chapters Eight and nine), and articles or other materials assigned here.

• Chaynowski, K. (2017). Snap Shares Plummet Nearly 20% After Revenue, User Growth Miss EstimatesLinks to an external site.. Forbes. https://www.forbes.com/sites/kathleenchaykowski/2017/11/07/snap-shares-plunge-on-third-quarter-revenue-earnings-miss/?sh=40de0fcabecb
• Connerly, B. (2013). Uncertainty and Risk Management: What to Do About Black Swans?Links to an external site. Forbes. https://www.forbes.com/sites/billconerly/2013/02/20/uncertainty-and-risk-management-what-to-do-about-black-swans/?sh=381e3c015768
• Kaplan, R. and Grossman, A. (2010). Emerging Capital Market for NonprofitsLinks to an external site.. Harvard Business Review. https://hbr.org/2010/10/the-emerging-capital-market-for-nonprofits

Background:

Capital budgeting, the process of analyzing investment opportunities to determine which to accept, constitutes a core activity of every for-profit or non-profit organization. A decision to allocate capital to a project implies that the firm has chosen not to engage in an alternative project or investment. All budgeting decisions are associated with an opportunity cost, in other words. Most projects are relatively irreversible and have long-term consequences for the firm. Decision rules have been developed to ensure that mangers focus on increasing shareholder value, and required readings for this module consider a range of decisions rules and forecasting tools used in the capital budgeting process.

Whether we understand firm's capital budgeting as supporting shareholder value (in a for-profit firm), or the organization's mission (in a non-profit firm), it is at the center of an organization's ability to achieve operational goals.

Give its economic and financial importance to the firm, it is not surprising to find that firms across the globe evaluate these decisions using similar tools. Firms nevertheless tend to apply these with varying fidelity.

In this discussion, you are asked to consider the application of technical tools described in this module, and their limitations, including how and why firms build security into their decision-making process. Investors watch corporate earnings reports in anticipation, and with anxiety. These reports, and the way that results differ from earnings forecasts, can have short and long-term effects on shareholder value, and on the operation of the firm more generally.

In this prompt, utilize assigned readings to present to peers formally, summarizing the practical and market-driven implications of earnings estimates that result from managers' application of decision rules, forecasting techniques, and additional analyses to reduce risk and justify earnings estimates and, ultimately, capital budgeting decisions. Assume that you and your peers form a single management team, however, given that you vary in your familiarity with these issues, it is to the benefit of yourselves and the firm to increase understanding in these areas.

Tasks:

1. Explain:
   1. Decision rules used alongside NPV to assess investment projects, considering their logic, application, and complementary nature;
   2. Elements of capital budgeting which might differ for non-profit firm;
   3. Risk-mitigation procedures;
   4. Consequences of uncertainty, including:
      1. External, Market-driven consequences
      2. Internal Financial or Operational Consequences