FIN200 Corporate Financial Management | Assignment
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FIN200 Assignment - Corporate Financial Management (FIN200)
Added on 2019-11-19
FIN200 Corporate Financial Management | Assignment
FIN200 Assignment - Corporate Financial Management (FIN200)
Added on 2019-11-19
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FIN200 Assignment
Table of ContentsIntroduction.................................................................................................................................................3Decision making process.............................................................................................................................3Sensitive analysis.....................................................................................................................................4Scenario analysis.....................................................................................................................................7Break even analysis.................................................................................................................................9Simulation techniques...........................................................................................................................10Conclusion.................................................................................................................................................11References.................................................................................................................................................12
IntroductionAs studies conducted by Zimmerman & Yahya-Zadeh, (2011), said that capital budget is theprocess by which management of the organization determines whether to accept on certainproject. Capital budget analysis procedures mainly involves estimating the amount of money theorganization has to invest as well as the amount of money the project will produce. Therefore thetop level of the organization implements the capital budget procedures in order to make betterdecision making process in investment of the project. Bierman & Smidt, (2012), said thatCapital budget process mainly generate the thought is that the capital, short term and long termfund raised by the organization are utilized to invest in assets that will assist the firms to generaterevenue for long terms. Therefore the main objective of this report is to help the management of the organization indecision making procedures. Woolworths is an Australian based organization and founded inyear of 1924 in Sydney. It is the largest retail organization in Australia by sales and marketcapitalization which includes liquor, foods, and general merchandise and consumer electronicproducts with over approximately 75% of the group sales as well as EBIT, coming from the salesof liquor and food. The key successful for the organization is to maintain better marketcapitalization and continuous investment in new stores across both demographical andgeographical growth areas. Therefore, present report is mainly empathized upon the important of the sensitive analysis,scenario analysis, break even analysis and simulation analysis in context to decision makingprocedures. Decision making process As said by theGarrison, et al., (2010), decision making process is mainly involves of makingchoices by determining a decision, gathering information and assessing optimization solutions.An effective as well as successful decision making process helps the business to make profitsand unsuccessful decision leads the business profitability in negative manner. According to the
Zimmerman & Yahya-Zadeh, (2011),capital investment decision involves in indentifying andanalyzing capital project for the organization. In order to make better decision process financemanagers implements the net present values, accounting rate of return and internal rate of returnthat helps them to determine that project is profitable or not. An organization may utilize severalprocedures to find out the financial impact of certain project. The organization may compute theamount of time that helps them to generate enough money to cover the investment expenses. Theorganization may estimate the cash flow of the project over time and estimate whether projectgenerate profits or not. All the methods that can be used to compute the profitability of the project is making assumptionand find out the project’s upcoming performance. Finance manager then utilizes the result andmake their decisions. Moreover, the estimation and assumptions may turn out to be wrong aswell as project may produce unexpected outcomes (Aronson, Liang & Turban, 2005). Use of theabove motioned tools helps the organization to determine project feasibility, but these tools arefailed in identification of the risks associated with the risks. Therefore in order to solve this problem, management of the organization mainly implements thesensitive analysis techniques, scenario analysis techniques, break even analysis techniques andsimulation techniques. Sensitive analysis According to theBodie, (2013), sensitive analysis is tools that help the organization to estimatewhat will happen to the project if the estimates and assumptions turn out to be unreliable.Sensitive analysis process mainly involves changing estimation and the assumptions incomputation to find out the main impact on the project’s performance and finance. In such casesensitive analysis techniques prepare the organization’s management in case the project does notproduce the expected outcomes; therefore they can better evaluate the project before making anyinvestment. As said by theBierman & Smidt, (2012), sensitive analysis is the way of evaluatingand analyzing changes in the project’s net present values for given change in any of the variable.The main benefits of sensitive analysis techniques are that it defines the critical variable forwhich particular action is to be taken. Moreover sensitive analysis guides the decision maker tocontemplate on relevant variable for the task. Sensitive analysis process indicates who sensitive
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