Thursday, November 28, 2019

Appraising Investment Decisions and Affects of Non Financial Factors The WritePass Journal

Appraising Investment Decisions and Affects of Non Financial Factors 1. BACKGROUND Appraising Investment Decisions and Affects of Non Financial Factors 1. BACKGROUND2. LITERATURE REVIEW2.1 Investment2.2 Investment Decision2.3 Investment Appraisal2.4 General or Conventional Appraisal Techniques2.4.1 Payback period2.4.2 Return on Investment2.4.3 Discounted Cash Flow Methods2.4.3.1 Net Present Value (NPV)2.4.3.2 Internal Rate of Return (IRR)2.5 Limitation of Conventional Techniques2.6 Strategic Investment3. RESEARCH METHODOLOGY3.1 Research Objective3.2 Research Questions3.3 Research Philosophy3.4 Research Approach3.5 Research Design3.6 Research Strategy3.7 Data Collection Techniques3.8 Qualitative Research4. TIME PLAN4. CONCLUSION5. REFERENCESRelated 1. BACKGROUND The search for reliable techniques for project appraisal is an aged activity. Still it is of prime importance because the survival of a corporation is predominantly determined by its ability to revitalize itself through the allocation of capital to productive use (Arnold and Hatzopoulos, 2000). Inadequate use of decision tools expand the possibility of less return then the cost of capital, resulting in destruction of firm’s value (Copeland et al., 2000). A successful investment can make profits, increases market share and adds value to the firm, but on the contrary, if it is unsuccessful the firm will experience a loss. An incorrect investment decision may even lead to closure of a firm or bankruptcy. Therefore, the decision to invest or not is very crucial to any firm as it determines its future, and at the same time, this decision signifies the importance of investment evaluation techniques accordingly. Due to importance of such decision and extensive research, there is no shortage of tools and techniques to analyze an investment. Numbers of tools are available to find out the extent of profitability of an investment to help managers in making this vital decision (Akalu, 2001).   The most popular techniques are the net present value, internal rate of return, return on investment, benefit/cost ratio method and payback period (Remer and Nieto 1995). Scholars and some other sources tend to emphasize discounted cash flow methods, especially NPV approach, as superior to other methods (Tatsiopoulos and Tolis, 2002; Kaplan and Atkinson, 1998; Zimmerman, 1997). However, these conventional appraisal techniques (especially DCF methods) sometimes misinform when they are improperly used, estimation of cash flows are inaccurate, rough identification of discount rate or when vital non-quantifiable aspects of projects are omitted (Kaplan, 1986; Dugdale and Jones, 1995). In literature almost all of the proposed techniques are not free from criticism. The most common and major argument made by scholars is that conventional methods of appraising investment does not give adequate information due to risk and uncertainties; and they are not even appropriate to analyze strategic investments (Bierman, 1980; Brealey et al, 1992; Cox et al, 1985). Risk can be reduced if identified and uncertainties may even be dealt with research, but it’s almost impossible to eliminate these factors from investment. To deal with these factors scholars have proposed some additional methods like sensitivity analysis, simulation analysis, scenario analysis, probability analysis and portfolio theory (Pike and Neale, 2006). Though, in regard to strategic investments, conventional appraisal techniques fall short because they don’t capture intangible or non financial project attributes (Busby and Pitts, 1997; Dempsey, 2003). Butler et al. (1991, p. 402) noted: â€Å"In making decisions on strategic investments, quantifiable financial performance factors (whether measured by discounted cash flow techniques, payback period, or impact on sale and profits) were viewed as of secondary importance by most respondents. Product quality, fit with business strategy and improving the competitive position of the firm were the most important factors considered by all informants.† Some special methods for appraising strategic decision are also established and described by scholars. Among these, the balance scorecard, real option analysis, value chain analysis, benchmarking and technology roadmapping are of vital importance (Kaplan and Norton, 2001; Hoque, 2001; McCarthy, 2003; MacDougall and Pike, 2003). However, continuous usage of conventional appraisal methods, despite their recognized limitation, leaves us in a vague situation and inclines us to explore more. 2. LITERATURE REVIEW 2.1 Investment Investment is employment of funds or capital with the aim of making future benefit. In literature and corporate world this activity is also referred as capital investment. G.H Lawson and Richard Pike (1981) describe it as: â€Å"Capital investment usually refers to the commitment of funds to fixed capital expenditure in the anticipation of returns that compensate for the risk of the investment and the delay in the enjoyment of funds, i.e. consumption.† 2.2 Investment Decision It is the process where managers or investors decides whether or not, when and how to spend money on the project. The heart of all investment appraisals is to calculate the value of spending money, by comparing the benefits with the costs. If this is done incorrectly, it could hammer the investor or firm’s growth (Mott, 1982). 2.3 Investment Appraisal The most important step to start appraising the investment is the identification of cost and benefit associated with it. This step requires immense of experience and expertise as it is an anticipation and mainly this reason has also forced Aggarwal (1993) to argue that â€Å"evaluating capital investment is close to an art and father from a science than is desirable†. Hence it can be said that investment appraisal techniques can never replace managerial judgment, but they can help make judgment more sound (Lumby and Jones, 1999). The major questions to be asked while investment appraisals are highlighted by Campbell (2006), these are: What return on capital employed will the project deliver? How quickly will the project pay for itself? Will the project add value to business? 2.4 General or Conventional Appraisal Techniques 2.4.1 Payback period This non-discounted appraisal techniques seeks to assess how quickly the positive cash flow recovers the initial capital investment. It is calculated by estimating the timely cash flows and at what time the project over comes the investment by the later returns. The project is accepted if it is equal to or less then the predetermined acceptable time or the one with lesser recovery time among available alternatives is accepted (Mott, 1982; Campbell, 2006). 2.4.2 Return on Investment Return on investment or return on capital employed is another non-discounted method for project appraisal. It is a ratio indicator which tells how well the investor or firm is utilizing the capital to generate revenue. The calculation is done by taking profit before tax and divides it by the difference between total asset and current liabilities (Lumby and Jones, 1999). This method has also some disadvantages but is a useful technique as well. 2.4.3 Discounted Cash Flow Methods These methods covers the issue of time value of money, which is, the future money is worth less than money at present. DCF technique converts the future cash flows value into the value of present day. In this manner we can worth the investment at the point when we are actually making it (Brealey et al, 2009). Among the family of discounted cash flow techniques net present value and internal rate of return are vital. 2.4.3.1 Net Present Value (NPV) Net present value is calculated by converting all future cash flows in today’s date and then deducting it from today’s investment. Positive NPV implies that the project is worth to create value and generally the project is accepted when NPV is greater than zero or the one with higher NPV is selected among available alternatives (Campbell, 2006). 2.4.3.2 Internal Rate of Return (IRR) It is that rate at which the net present value is zero. It is complex and difficult to calculate manually, as it is a trial and error method. Generally the project is accepted if the IRR is greater than the hurdle rate, discount rate or in simple terms the opportunity cost (Blank and Tarquin, 1989). 2.5 Limitation of Conventional Techniques Although every technique has its own and unique limitations but here general limitations are mentioned. The non discounted methods are normally criticized due to time value of money and discounted methods are argued due to its complexity. The most common errors found in applying DCF methods are: pre tax calculation of discount rate; anticipation of non-economic statutory in discount rate which may leads to error and incorrect results; interest charges are included in cash flows; cash flows are specified in today’s money (excluding inflation); use of single cut of rate instead of rate reflecting project risk (Pike and Neale, 2006). A major limitation of these techniques, which I have also mentioned earlier, are incapability to include the non financial factors into consideration like risk, uncertainties and factors involved in strategic investments. It has been argued that every single benefits of strategic investment are difficult to quantify and some other approach is required for strategic investment decisions, other than conventional financial techniques ((Butler et al., 1991; Covin et al., 2001). 2.6 Strategic Investment Strategic investment decisions mainly concerns long term investments in asset. Common type of SIDs includes: new product development, new market development, new technology or infrastructure, mergers and acquisitions (Harris et al., 2009). Strategic investments does not only brings economic value to the firm; benefits like increase in product quality, better competitive position, fit with business strategy, increase in customer loyalty can an advantage of strategic investment (Butler et al., 1991). 3. RESEARCH METHODOLOGY 3.1 Research Objective The main purpose of this research is to examine the importance of non-financial factors that could affect the investment appraisal process.   The research aims to analyze and study conventional investment appraisal techniques and highlight their limitations. Moreover, the research shall investigate the non-financial factors that are considered important in evaluating strategic investment projects.   Lastly, the study shall investigate whether recently developed analysis tools such as those that aim to integrate strategic and financial analysis, being used to evaluate strategic investment projects. 3.2 Research Questions The research questions that this study shall attempt to answer through the analysis of empirical data are as follows: What are the limitations of conventional investment appraisal techniques? What non-financial factors are considered important in investment evaluation, especially in strategic investment decision? Do organisations use conventional appraisal techniques for evaluation of strategic investment projects or prefer using recently developed strategic analysis tools in order to evaluate? 3.3 Research Philosophy The research philosophy adopted by the researcher is one of ‘subjectivism’.   Morgan and Smirchich (1980) state that subjectivism perceives reality as a â€Å"social construct†.   Saunders et al (2009) state â€Å"the subjectivist view is that social phenomena are created from the perceptions and consequent actions of social actors†. In this case, the social actors are the company’s that shall be studied.   Strategic investment decision making shall be analysed and investigated in this research based upon the actions of views of these ‘social actors’. Saunders et al (2009) state that for a researcher to understand any action he should explore the subjective meanings motivating those actions. This research aims to investigate the reasons behind implementation of modern strategic analysis tools by identifying the weaknesses of conventional strategic analysis methods and understanding how non-financial factors affect investments. Remenyi et al (1998) also emphasise on this issue and discuss the importance of studying the details of a certain situation in order to understand the ‘behind-the-scenes’ reality. 3.4 Research Approach Deductive approach is defined as developing a conceptual framework by studying the theory and testing this through either confirming or rejecting the hypothesis developed based on the theory by studying the empirical data collected (Bryman and Bell, 2007).   An inductive approach, as defined by Bryman and Bell (2007), is one where theory is the outcome of research. According to Saunders et al (2009) in an inductive approach the theory follows from the collected data unlike in a deductive approach where it is the other way around. This research shall collect empirical data on strategic investment appraisal techniques using the methods mentioned below and the researcher will draw a conclusions based on the collected data by studying the inherent patterns   and thus, this study shall adopt an inductive approach. 3.5 Research Design Research design is defined by Collis and Hussey (2003) as planning procedures for conducting research in order to obtain the most adequate results. The purpose of implementing an appropriate research design is to make sure that the data collected for the purpose of the research enables the researchers to answer the research questions proposed. According to Saunders et al (2007) there are seven types of research designs and each can be used for explanatory, descriptive or exploratory research.   Since this research aims to highlight the limitations of conventional investment appraisal techniques and investigate the use of modern techniques, an exploratory research needs to be conducted.   An exploratory research is used when there are no existing models to use as a basis for the study. 3.6 Research Strategy The research strategies as discussed by Saunders et al (2009) are experiment, survey, case study, action research, grounded theory, ethnography, and archival research. The research strategy adopted for the purpose of this study is ‘case study’. Stake (2000) defines case study as an organised and systematic way of producing information on a certain topic. Cooper and Morgan (2008) define case study as â€Å"an in-depth and contextually informed examination of specific organizations or events that explicitly address theory.† Case studies help analyse the experience or activities of a particular event of phenomena. This research aims to investigate the use of recently developed strategic analysis tools and thus shall conduct an in-depth study of an organisation in order to investigate whether the said organisation implements such techniques. The company selected for the purpose of this research is Engro Corp. Engro Corp is one of the largest conglomerates in Pakistan and since I have family working within the organisation at reputable posts I have access to the company and shall be able to obtain the required primary data rather easily. Due to the fact that there is very little data on the use of recently developed strategic analysis tools and the data required for this research is not reported externally, this research shall use primary data collected through a questionnaire.   For this particular topic, only primary data can assist in answering the research questions posed and the objectives stated. 3.7 Data Collection Techniques The research shall primarily use primary data.   Some secondary data will also be used to support the primary data collection. Primary data used for this study shall be collected through a survey. An open-ended questionnaire shall be used to collect the data required for the research.   The questionnaire shall be self-administered and E-mail to the appropriate personnel within the company. The in-depth questionnaire shall explore the use of investment appraisal techniques within the company and if required, the researcher shall also issue a follow up questionnaire in order to collect further data for this research. 3.8 Qualitative Research Cresswell (1994) stated that qualitative research assists in understanding social or human problems by building a complex picture formed using words which report detailed views of informants.   Qualitative research involved the use and collection of a range of empirical data and involved an interpretive approach towards the subject. Hence, in this case qualitative research methods shall be used due to these aforementioned characteristics which are deemed suitable for this research. 4. TIME PLAN 4. CONCLUSION Choosing investment decision for research is due to my interest in the topic. However, it is also a part of my degree program and as per my knowledge there are some gaps which need to be filled. I will try me level best to add valuable input to this area of study. This research will definitely increase my knowledge, skills and will give me a worthy experience. 5. REFERENCES Aggarwal R. (1993). Capital Budgeting Under Uncertainty: New and Advanced Perspectives. Prentice-Hall: Englewood Cliffs, NJ. Akalu M (2001). Re-examining project appraisal and control: developing a focus on wealth creation. International Journal of Project Management; 19(7):375–83. Arnold G, Hatzopoulos P. (2000). The theory-practice gap in capital budgeting: evidence from the United Kingdom. Journal of Business Finance and Accounting 27(6): 603–626. Bierman, H (1980) Strategic Financial Planning Free Press, New York Blank, L.T. and Tarquin, A.J., (1989). Engineering Economy, 3rd. ed. McGraw-Hill, New York. Brealey, R S et al (1992) Principles of Corporate Finance 2nd Canadian edn, McGraw-Hill Ryerson Ltd, Toronto, Canada Brealey, R. Myers, S. Marcus, A (2009). Fundamentals of Corporate Finance. 6th ed. New York: McGraw-Hill. 116-274. Bryman A. Bell E. (2007). Business Research Methods. Oxford: Oxford University Press.Busby, J.S., Pitts, C.G.C., (1997). Real options in practice: an exploratory survey of how finance officers deal with flexibility in capital appraisal. Management Accounting Research 8 (2), 169–186. Butler, R., Davies, L., Pike, R., Sharp, J., (1991). Strategic investment decision-making: complexities, politics and processes. Journal of Management Studies 4 (28), 395–415. Campbell, I. W. (2006), Business Economics and Accounting, MBA Module Manual- Accounting Finance 2005-2006, Bradford University School of Management.Collis J. and Hussey R., (2003), Business Research: A practical approach for undergraduate and post graduate students. New York: Palgrave Macmillan Cooper, D. J., and W. Morgan. (2008). Case study research in accounting. Accounting Horizons 22: 159-178. Copeland T, Koller T, Murrin J. (2000). Valuation. Wiley: New York. Covin, J.G., Slevin, D.P., Heeley, M.B., (2001). Strategic decision making in an intuitive vs. technocratic mode: structural and environmental considerations. Journal of Business Research 52 (1), 51–67. Cox, J C (1985) An intertemporal general equilibrium model of asset prices. Econometrica 53, 363-384. Dempsey, M.J., (2003). A multidisciplinary perspective on the evaluation of corporate investment decision making. Accounting, Accountability Performance 9 (1), 1–33. Dugdale, D., Jones, C., (1995). Financial justification of advanced manufacturing technology. In: Ashton, D., Jones, C. (Eds.), Issues in Management Accounting, second ed. Prentice Hall, Englewood Cliffs, NJ, pp. 191– 213. Harris,E, Emmanuel,C and Komakech, S (2009). Managerial Judgement and Strategic Investment Decisions. London: CIMA Publishing. 10-35. Hoque, Z., (2001). Strategic management accounting: concepts, procedures and issues, Chandos Publishing. Kaplan R, Atkinson A. (1998). Advanced Management Accounting (International edn.). Prentice-Hall: Englewood Cliffs, NJ. Kaplan, R.S., (1986). Must CIM be justified by faith alone? Harvard Business Review March April, 87–95. Kaplan, R.S., Norton, D.P., (2001). Transforming the balanced scorecard from performance measurement to strategic management: Part 1. Accounting Horizons 15 (1), 87–104. Lawson, G.H and Pike, R.H (1981). Capital Investment: Theory and Practice. Bradford: MCB Publications. 10-35. Lumby, S. and Jones, C. (1999), Investment Appraisal and Financial Decisions, Sixth Edition, International Thomson Business Press, London. MacDougall, S.L., Pike, R.H., (2003). Consider your options: changes to strategic value during implementation of advanced manufacturing technology. Omega 31 (1), 1–15. McCarthy, R.C., (2003). Linking technological change to business needs. Research Technology Management 46 (2), 47–52. Morgan, Gareth, and L. Smircich (1980). The Case for Qualitative Research Acad. Management Rev., 5 (1980), 491-500. Mott, G. (1982), Investment Appraisal For Managers, The Macmillan Press Ltd; Bath. Pike, R. and Neale, B. (2006), Corporate Finance And Investment- Decisions and Strategies, Fifth Edition, Pearson Education Ltd, Bath.Remenyi et al (1998), Doing Research in Business and Management; an Introduction to Process and Method.   London, SAGE Remer D, Nieto A (1995). A compendium and comparison of 25 project evaluation techniques. International Journal of Production Economics 1995; 42(1):79–96. Saunders, Mark N.K.; Lewis, Philip Thornhill, Adrian (2009). Research methods for business students (5th edition). London: Financial Times Management. Stake E. Robert (2010). Qualitative Research: Studying How Things Work. New York: The Guilford Press. Tatsiopoulos I, Tolis A. (2002). Technical and economic evaluation and feasibility study of biomass energy. International Journal of Environment and Sustainable Development 1(2): 142–159. Zimmerman J. (1997). Accounting for Decision Making and Control (2nd edn.). Irwin-McGraw-Hill: Boston.

Sunday, November 24, 2019

Three Different Elements of a Crime

Three Different Elements of a Crime In the United States, there are specific elements of a crime that the prosecution must prove beyond a reasonable doubt in order to obtain a conviction. The  three specific elements (with exception) that define a crime which the prosecution must prove beyond a reasonable doubt in order to obtain a conviction: (1) that a crime has actually occurred  (actus reus), (2) that the accused intended the crime to happen (mens rea)  and (3) and concurrence of the two meaning there is a timely relationship between the first two factors. Example of the Three Elements in Context Jeff is upset with his ex-girlfriend, Mary, for ending their relationship. He goes to look for her and spots her having dinner with another man named Bill. He decides to get even with Mary by setting her apartment on fire. Jeff goes to Marys apartment and lets himself in, using a key that Mary has asked for him to give back on several occasions. He then places several newspapers on the kitchen floor and sets them on fire. Just as he is leaving, Mary and Bill enter the apartment. Jeff runs off and Mary and Bill are able to quickly put out the fire. The fire did not cause any real damage, however Jeff is arrested and charged with attempted arson. The prosecution must prove that a crime occurred, that Jeff intended for the crime to occur, and concurrence for attempted arson. Understanding Actus Reus Criminal act, or actus reus, is generally defined as a criminal act that was the result of voluntary bodily movement. A criminal act can also occur when a defendant fails to act (also known as omission). A criminal act must occur because people cannot be legally punished because of their thoughts or intentions. Also, referencing the Eighth Amendment Ban on Cruel and Unusual Punishment, crimes cannot be defined by status.   Examples of involuntary acts, as described by the Model Penal Code, include: A reflex or convulsion;A bodily movement during unconsciousness or sleep;Conduct during hypnosis or resulting from hypnotic suggestion;A bodily movement that otherwise is not a product of the effort or determination of the actor, either conscious or habitual.   Example of an Involuntary Act Jules Lowe of Manchester, England, was arrested and charged with the murder of his 83-year-old father Edward Lowe was brutally beaten and found dead in his driveway. During the trial, Lowe admitted to killing his father, but because he suffered from sleepwalking (also known as automatism), he did not remember committing the act.   Lowe, who shared a house with his father, had a history of sleepwalking, had never been known to show any violence towards his father and had an excellent relationship with his father. Defense lawyers also had Lowe tested by sleep experts who provided testimony at his trial that, based on the tests, Lowe suffered from sleepwalking. The defense concluded that the murder of his father was a result of insane automatism, and that he could no be held legally responsible for the murder. The jury agreed and Lowe was sent to a psychiatric hospital where he was treated for 10 months and then released. Example of a Voluntary Act Resulting in a Non-Voluntary Act Melinda decided to celebrate after receiving a promotion at work. She went to her friends house where she spent several hours drinking wine and smoking synthetic marijuana. When it is time to go home, Melinda, despite protests from friends, decided she was okay to drive herself home. During the drive home she passed out at the wheel. While passed out, her car collided with an oncoming car, resulting in the death of the driver.   Melinda voluntarily drank, smoked the synthetic marijuana, and then decided to drive her car. The collision that resulted in the death of the other driver occurred when Melinda was passed out, but she was passed out due to decisions she voluntarily made before passing out and would therefore be found culpable for the death of the person driving the car she collided with while passed out. Omission Omission is another form of actus reus and is the act of failing to take action that would have prevented injury to another person. Criminal negligence is also a form of actus reus.   An omission could be failing to warn others that they could be in danger because of something that you did, failure to a person left in your care, or not failure to complete your work properly which resulted in an accident.   (Source: U.S.Courts - District of Idaho)

Thursday, November 21, 2019

The Cuban Missile Crisis in 1963. The Role of Diplomacy in Preventing Essay

The Cuban Missile Crisis in 1963. The Role of Diplomacy in Preventing the 3rd Word War - Essay Example The Cuban missile crisis is largely held as the greatest military conflict that occurred during the Cold War. American destroyers were positioned along a picket line with the aim of intercepting Soviet ships moving missiles and atomic warheads to Cuba. Moreover, American air, naval pegged with ground forces got ready for air raids against Soviet missile sites under structure in Cuba. The Strategic Air Command stood put on an extraordinary state of vigilance– â€Å"DEFCON II,† merely one step away from the fact â€Å"war is imminent.† In October 1987, contrary to the setting of Mikhail Gorbachev’s glasnost, it is worth noting that a conference on the Cuban Missile Crisis was conducted. This was the first time, together with living veterans of the Kennedy Government, three reliable Soviet witnesses: the sons of Khrushchev coupled with his closest associate, Anastas Mikoyan, and a past Khrushchev speechwriter were in attendance. After years of persistent secr ecy, the display of reliable Kremlin insiders considerately, cordially, even optimistically linking anec ­dotes and examining the crisis was an exciting novelty, promis ­ing further exposes (Waltz, 2012). Evaluation His heart was thumping rapidly. His hands were quaking, and the tautness was taking his pant away. The tick tack of the watch was retelling him there was not ample time left. Similar to a chess game, John F. Kennedy was at the verge of making a quick and clever decision. Checkmate, and he would triumph in the game. But what if he made an erroneous move? A lot of people’s lives depended on his decision, hence were in his hands. What is branded as the â€Å"Fourteen days of October† (Van De Mark, 1996) stood as the closest that the universe had ever witnessed to a nuclear war. In the course of 1962, the Soviet Union started to construct secret missile headquarters in Cuba for the drive of creating equilibrium over the U.S. arms collection. The U.S., sensi ng a threat from the Soviet Union, took instant actions to  avert this progress. The condition eventually intensified, and neither side was philanthropic upon their stresses (Hershberg, 2004). Yet, as in each chess game, one can either gain, loose, or the game is haggard. In  politics, however, the game is only haggard when there is cooperation amongst the players. In this case, the destiny of millions plainly hinged upon the capability of two people President John F. Kennedy and Premier Nikita Khrushchev, to influence a compromise. Interests and Goals Certain people might claim that beginning a battle would be the greatest answer for  US. Of course, as a global influence, it would not have been tough for them to overthrow USSR. The conflict would not essentially have to be nuclear. One of the choices that Kennedy had was to block Cuba so as to strike the missiles located by USSR in Cuba’s terrain. It is worth noting that some people still consider that it would have be en a harmless option into backing the end of the conflict. However, this would not function as a way to terminate the conflict but somewhat to initiate it. What are thought to be the significances of little wars are often the grounds for bigger ones (Jane and Ramesh, 1989). The United States deliberated on placing an attack on Cuba via air and sea. However, they agreed on a military "solitary confinement" of Cuba. The U.S. proclaimed that it would not license aggressive