Corporate Financial Accounting- Report
9 Pages3038 Words184 Views
Added on 2019-11-26
Corporate Financial Accounting- Report
Added on 2019-11-26
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CORPORATE FINANCE MANAGEMENT
An organization is constructed on decisions made by its management. Therefore, the process ofdecision making is an important part of an entity, if in any way the decision is stated to be wrongthen the output may not be appropriate and may result in a huge loss to the company in the formof revenue or reputation. Decision means to reach the conclusion of any scenario only afterexamining various fields of action and choosing the most suitable option. The main target ofdecision making is to keep up with its goals. Decision making requires constant focus as businessenvironment is never static. As soon as one problem is eliminated, the second one comes up andthis process continues(Berman, Knight and Case, n.d.)..The process of corporate decision-making in an entity takes place at different levels, whetherabove the bottom or below the top. The implementation of corporate decision-making is made tobe done by its implementers because decisions are only effective when they are being carried outin the best possible manner (Bruner, Eades and Schill, 2017). Implementing large plans may bemeaningless if no obligation will be presented by middle and lower management.Therefore, it isvery important for the management to maintain a good and healthy relationship with its middleand lower level of management.Hence, corporate decisions are successful till the point it has thepower to bond which helps the leaders to be encouraged and maintain stability, otherwise, theinstitution gets trapped in its own trick which leads to degradation of the competition in themarket (TULSIAN, 2016).Capital Budgeting refers to the calculation of various expenses or investments, which are huge innature. The investment and expenses which need to be calculated contain projects like making ofnew plant or long term investments. By capital budgeting, cash inflows and outflows for alifetime are being formed so that it can be evaluated to know if the potential return is meeting theassigned target or benchmark. It is also known as 'investment appraisal'. For an enterprise, it facilitates the use of all opportunities and projects, but because of the limitedavailability of capital at a particular point of time, it forces the management to use capitalbudgeting to evaluate the maximum return on all available items at a particular time.Capital budgeting contains various methods like internal rate of return (IRR), discounted cashflow (DCF), net present value (NPV) and payback period. They may be defined in the followingmanner:DCF Analysis: This examination is similar to the NPV analysis because it takes intoaccount the initial cash outflows which are needed to fund a project, cash inflows andother future outflows in the form of servicing and other expenses. Such costs have beendiscounted to the current date and thus the resulting number is called NPV (Clarke andClarke, 1990).
NPV: It is the distinction between the present value conditions of the cash inflow and theoutflow is used by capital budgeting to determine the profitability of the project or longterm investment.The positive NVP indicates the expected return after exceeds the cost, and the negativeNPV indicates a financial loss of the firm (Fairhurst, 2015). As an example – A and B aretwo different projects with different structures of cash flow and the rate of returnrequired, and then the NVP of the cash will be as follows:YearAB0-80000-80000120000 -224000 -320000 -4270006500053000075000Required rate of Return 12%NPV of Project AYearCash FlowPresent Value of Cash Flows0-80000 -80,000120000 17,857224000 19,133320000 14,236427000 17,159530000 17,023NPV 5,407NPV of Project BYearCash FlowPresent Value of Cash Flows0-80000-800001 - - 2 - - 3 - - 465000 41,309575000 42,557NPV 3,866DiscountedPaybackPeriod:It is a form of capital budgeting method which specifies the time period of discontinuing
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