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Corporate Decision Making

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Added on  2020-03-23

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Various aspect of capital budgeting technique is evaluated on the basis of the total profit through that project, the total time period in which the company would be able to get back the entire amount, the internal rate of the project, accounting rate of return of the project etc. Corporate decision making is a tool which analyzes the project on the basis of various techniques such as break even analysis, scenario analysis, sensitivity analysis, simulation technique etc (Bierman and Smidt, 2012). In this report, the

Corporate Decision Making

   Added on 2020-03-23

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Running Head: Corporate Finance 1REPORT: Corporate Finance
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Corporate Finance 2ContentsIntroduction.......................................................................................................................3Sensitivity analysis...........................................................................................................4Scenario analysis..............................................................................................................5Break even analysis..........................................................................................................7Simulation techniques.......................................................................................................9Conclusion......................................................................................................................10References.......................................................................................................................11
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Corporate Finance 3Introduction:Corporate decision making is required by an organization at every step. Corporate decision making is a crucial process in which various options are evaluated by the managers of the company and then they make a crucial decision about the available options by choosing the best option from them. In capital budgeting techniques, corporate decision also plays a significant role. In this study, the corporate decision process in capital budgeting techniques has been analyzed. Capital budgeting is an investigation process in which various investment proposal are analyzed on the basis of various aspects. And then a best proposal is chose by the company to make more profits and satisfying the needs of customers as well as the stakeholders (Bodie, 2013). Various aspect of capital budgeting technique is evaluated on the basis of the total profit through that project, the total time period in which the company would be able to get back the entire amount, the internal rate of the project, accounting rate ofreturn of the project etc. Normally, the process of capital budgeting technique is implemented by the companies to analyze the long term projects which have a life of more than 2-3 years. Corporate decision making is a tool which analyzes the project on the basis of various techniques such as break even analysis, scenario analysis, sensitivity analysis, simulation technique etc (Bierman and Smidt, 2012). In this report, the decision process has been implemented according to the Net present value of the project, payback period of the project, internal rate of return , average rate of return etc. In addition, every firm investigates the entire available project according to various tools and techniques as the main motto of the company is to make high profits. For this, company considers the return factor from that project as well as entire associated risk with the project. So, it becomes essential for a firm to analyze every project according to the above
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Corporate Finance 4discussion, so it becomes easy for the company to make profits and enjoy the growth in the market, basically, the projects of long term for a company could be new machineries, new market, new plants, new products, replacement of old technique, machineries etc. So for examining to find out the best project, a firm could consider the process of break even analysis, scenario analysis, sensitivity analysis, simulation technique etc.Sensitivity analysis:Sensitivity analysis is a tool of corporate decision making which is used in various situations by the company to make a better decision for achieving the goal of the company. this technique is evaluated to identify that how diverse factors make an impact over an individual aspect. In this process, an individual factor is taken into consideration and it has been analyzed that how the changes into the dependent factor could make an impact over thatindividual variable. This process is important to analyze the historical data and then male a prediction about the future performance of that project. Sensitive analysis tool is crucial in the process of capital budgeting technique, as it evaluates the value of entire cash outflow, present value factors, total cash inflow, total life ofthe project, discount rate etc. through this analysis all the above factors are investigated according to their historical data and the performance. In this analysis, the dependent and independent factors are analyzed and the project is investigated according to taking various assumptions. Such as if the present value factor of the project would be changed than the net present value amount of the project would also be changed whereas if the total time period of the project life would be changed than it would directly make an impact over the project’s internal rate of return (Lumby & Jones, 2007). In addition, the tool of sensitivity analysis assists firm to determine that how the project’s factor and value would be changed, if the assumption which have been taken would
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