1. 6th Step – What about a 6th step, abandon or kill a project. Depending on the situation, one may need to choose to abandon or discontinue a project.

Another step to add is a time line for a capital budget process. This ties into the idea whether a project should be ‘discontinued’ or not.

Your thoughts, Class?

  1. 6th Step Continued: Phillip, Brian, and Class, before abandoning a project, one can research alternative strategies, especially, if the cost is low and the rate of return exceeds costs (not break even, but has a substantial increase of 2% or keeping in mind continual increase in income). As noted, an alternative strategy will incur additional costs. Unless, a manager can prove or guarantee rate of return at a specific time period, the project may still be abandoned or killed. For instance, Home Depot implemented Six Sigma to eliminate or reduce waste within customer service (i.e. checkout lines). Home Depot incurred greater losses which caused Home Depot to kill the project (shutting down the Atlanta department).

http://www.wsj.com/articles/SB116787666577566679

http://www.bloomberg.com/news/articles/2007-06-10/six-sigma-so-yesterday

Class, your thoughts?

  1. Business Valuation: The capital budgeting decision techniques that we’ve discussed all have strengths and weaknesses, but they do comprise the most popular rules for valuing projects.  Valuing entire businesses, on the other hand, requires that some adjustments be made to various pieces of these methodologies.  For example, one alternative to NPV used quite frequently for valuing firms is called Adjusted Present Value (APV).

–What is APV, and how does it differ from NPV?

  1. Business Valuation Cont: Class, we all can find a definition to explain what APV is and possibly how it differs from NPV, but let us find articles which help us to understand why APV is used within multi-million dollar companies.

Here is an article identifying how APV calculations aid within the petroleum market.

http://www.ogfj.com/articles/print/volume-11/issue-8/features/apv-and-real-options.html

Class, your thoughts?

  1. Discount Payback Period (DPP) Continued:

To add, the payback period rule is the amount of time to break even in the accounting sense. Whereas, the discounted payback period is the amount of time to break even in the economic or financial sense. Investors receive their money back along with interest (the value of a new investment’s cash flow catches up and passes the original invested amount).

Many financial managers believe it is simpler to use net present value calculations because the calculation of discounted payback period is not as simple. Also, management must offer an arbitrary cutoff period.

Your thoughts, Class?

6.Business Plan: Financial Plan:

How do you foresee a business plan: financial plan as a useful tool for a specific Fortune 500 business. Please answer this question using a current Fortune 500 business (from this web site: http://beta.fortune.com/fortune500).

To earn credit for the post, choose a company which is not common to the class (i.e. a company that we might have never heard of). This will aid in everyone’s learning of businesses.

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