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Assessment 4: Case Study Due date: Week 10 Group/individual: Individual Word count/Time provided: 1500 words Weighting: 30% Unit Learning Outcomes: ULO1, ULO2, ULO4 Assessment 4 Detail The assignment is designed for students to practice the Capital Budgeting Process in project management by studying real case study. The nominated case study is from International Review of Business and Economics, Volume 4, Special Issue No.1, July 2020, pp 338-342, ISSN: 2474-5146 (Online) 2474-5138 (Print), EFFECTIVE CAPITAL BUDGETING DECISIONS BY FIRMS by MANJUNATH M.S. and PRAVEEN B. Guidelines for writing Critical Review & Evaluation: 1) Read the nominated case study. 2) Provide background of the case study. 3) Describe Capital Budgeting Process used in the case study. 4) What other factors were considered besides Capital financing and allocation functions during Capital Budgeting Process? Was there any managerial considerations and complications? 5) Provide critical review and evaluation. Evaluate and make recommendations in relation to the capital invested in this case study. The Report should include: • Introduction • Body of report (background of the case study, cost structure, factors affecting decision beside the cost, critical evaluation) • Concluding section (findings, recommendations) Assessments 4 Marking Criteria and Rubric The assessment will be marked out of 100 and will be weighted 30% of the total unit mark. The marking criteria and rubric are shown on the following page. Assessment 4 Marking Criteria and Rubric Marking Criteria Not Satisfactory (0-49% of the criterion mark) Satisfactory (50-64% of the criterion mark) Good (65-74% of the criterion mark) Very Good (75-84% of the criterion mark) Excellent (85-100% of the criterion mark) Introduction (10 marks) Providing an introduction and background to the selected case study. Inadequate knowledge to introduce the project case, Basic knowledge of writing an introduction to the case project, Exhibits a factual and/or conceptual skills to provide introduction to the case project Exhibits accurate & detailed breadth & depth of background of case project. Displays excellent skills in writing an introduction to the case project, Description of Capital Budgeting Process (30 marks) Describing Capital Budgeting Process for the chosen case study. Capital financing and allocation functions Inadequate description of capital budgeting process, Basic knowledge of capital budgeting process, Exhibits a factual and/or conceptual skills to describe capital budgeting process, Exhibits accurate & detailed breadth & depth to describe capital budgeting process, Displays Excellent skills to describe capital budgeting process, Consideration of other factors (30 marks) Consideration of other factors, Managerial considerations, and complications Inadequate, Consideration of other factors, Managerial considerations & complications Basic knowledge to consider other factors, Managerial considerations & complications Exhibits a factual and/or conceptual skills to consider other factors, Managerial considerations & complications Exhibits accurate & detailed breadth & depth to consider other factors, Managerial considerations & complications Displays Excellent skills to consider other factors, Managerial considerations & complications Writing and Presentation (20 marks) - good academic writing; - Free of any grammatical errors; using correct sentence structure; applying an extensive range of vocabulary; - Proper introduction and conclusion. Consistent formatting with suitable headings and sub- headings - Consistent use of Inadequate Academic Writing and Presentation skills. Basic Academic Writing and Presentation skills, Exhibits a factual and/or conceptual skills of Academic Writing and Presentation skills Exhibits accurate and detailed breadth and depth in Academic Writing and Presentation skills Displays Excellent Academic Writing and Presentation skills labels, highlights, font weight and underline Referencing (10 marks) - Comprehensive Reference list - Appropriate Referencing using HARVARD guidelines Inadequate understanding of Referencing Basic knowledge only of Referencing Exhibits breadth and depth of understanding of developing and using Referencing Exhibits accurate & detailed breadth & depth of understanding of developing & using Referencing Displays Exceptional Understanding of developing and using Referencing International Review of Business and Economics Volume 4, Special Issue No.1, July 2020 338 53. EFFECTIVE CAPITAL BUDGETING DECISIONS BY FIRMS Mr. MANJUNATH M.S., Lecturer, Department of Commerce,Government First Grade College, N R Pura, Mail:
[email protected] Cell: 9972160567 Mr. PRAVEEN B, Assistant Professor, Department of Commerce & Management,PES Institiute of Advanced Management Studies, Shivamogga. Mail:
[email protected] Cell: 9611650036 ABSTRACT Finance is the life blood of business. Finance is said to be the circulatory system of the economy body, making possible the required cooperation between the innumerable units of activity. Finance guides and regulates investment decisions and expenditure of administers economic activities. Capital budgeting means planning for capital assets. Capital budgeting decisions are complex process of paramount importance in financial decisions, because efficient allocation of capital resources is one of the most crucial decisions of financial management. Capital budgeting is budgeting for capital projects.Because the long-term profitability of most enterprises depends on the nature and quality of their capital project investments, appropriate planning, evaluation, and implementation of high-return capital projects are imperative. Capital budgeting helps managers plan for the acquisition of capital projects that promise high returns. It is a managerial technique of meeting capital expenditure with the overall objectives of the firm. The research findings are expected to be useful to the financial institutions, managers as well as practitioners in the area of investment decision-making. As there are various methods and criteria available, the research studies undertaken so far suggest that by and large decision-makers tend to select methods ignoring time value of money. KEYWORDS Capital Budgeting, Risk, Capital Expenditure. Capital budgeting.:It is decision- making process concerned with “whether or not (i) the firm should invest funds in an attempt to make profit?” and (ii) how to choose among competing projects. Risk:Refers to a situation in which there are several possible outcomes, each outcome occurring with a probability that is known to the decision-maker. Capital Expenditure: A capital expenditure is an expenditure incurred for acquiring or improving the fixed assets, the benefits of which are expected to be received over a number of years in future. INTRODUCTION A number of researchers in finance and accounting have examined corporate capital budgeting practices. Many of these articles survey corporate managers and report the frequency with which various evaluation methods, ISSN: 2474-5146 (Online) 2474-5138 (Print) One Day Online International Conference Organised by IRBE Publications, Denver, USA 339 such as payback, internal rate of return (IRR), net present value (NPV), discounted payback, profitability index (PI), or average return on book value are used. The process of budgeting resources for the future of an organization’s long termplans. Capital planning for a business would include budgeting for new and replacement machinery, research and development and the production of new products, new plants and other major capital expenditures. Capital budgeting is a managerial technique of meeting capital expenditure with the overall objectives of the firm. There are two fundamental types of financial decisions that the finance team needs to make in a business: investment and financing. The two decisions boil down to how to spend money and how to borrow money. A business needs to make investments in various projects. As a normal practice, a business entity invests the money in the acquisition of fixed assets, such as, machinery, land or building. OBJECTIVES OF THE STUDY The following objectives were set out for the study: 1. To determine the types of capital investments undertaken and the methods of appraisal used. 2. To analyze the problems faced to estimate the cash flows associated with each capital investment accurately. 3. To analyze how ‘Uncertainty’ in the future estimates in investment projects is being taken care of. 4. To study the preferences between Net Present Value (NPV) and Internal Rate of Return (IRR) methods. METHODOLOGY For the present study descriptive analysis method is applied and it is based on the secondary sources of data which have been collected from various articles, books, reports, documents journals, newspaper etc. Why do firms follow Capital budgeting decision? 1.Capital budgeting involves capital rationing 2.Capital budget becomes a control device when it is employed to control expenditure 3.A firm contemplating a major capital expenditure programme