Advo Week 1 Assignment

Budget management analysis is used by mangers as a tool and helps determine that all resources available are being used efficiently. The budgets are determined yearly and are based upon the previous year’s budget and variances. This paper will discuss specific strategies to manage budgets within forecast, compare five to seven expense results with budget expectations, describe possible reasons for variances, give strategies to keep results aligned with expectations, recommend three benchmarking techniques, and identify those that might improve budget accuracy, and justify the choices made.

The payback period looks at a project only until the costs have been recovered. This analysis tool is often ignored because it does not take into consideration the time value of money. The time value of money limitation of the payback period can be modified by using the discounted cash flows of a project for the analysis of when the outflows will be recovered.

The relatively well posed project with promises of great future pay offs must be examined closely nevertheless to determine its true profitability. As such, the Super Project’s NPV must be calculated, however before we proceed we must acknowledge the relevant cash flows. The project incurred an expense of testing the market. This expense, however, must not be included in our cash flow analysis because it can be considered a sunk cost. This expense is required for ‘taking a temperature’ of the market and will not be recovered. Other sources of cash flow include:

I will start by introducing the project that I decided to do for 5s assignment. The 5s project which it is a method that many companies use to organize their workplace to make it more effective and useful for their employees. For example, at my work we already have 5s implemented and it is working great so far. It is easy to identify tools that we the employees need in the daily basis and we all collaborate to keep it sustainable. However, since at my work we are pretty good on this project and there are not more areas where I can take the opportunity to implement 5s I decided to do 5s to my storage house.

1. Write checks to pay the following bills. The beginning balance in the checkbook is $4562.79.

I narrowed search to include articles that have been peer reviewed and published between 2005 and 2015

At about 6:08am, on October 4, 2009, Trisha Oliver, a resident of Cranston Rhode Island called 911 reporting that her six-year-old son, Marco Nieves, stopped breathing. Emergency authorities took Marco to Hasbro Children's Hospital, where he was found to be in full cardiac arrest. He later died after 11 hours attempt to save his life. At about 6:20am, Sgt. Michael Kite of the Cranston Police Department had arrived at the apartment, where he found Oliver, her boyfriend Michael Patino, and their 14-month-old daughter, Jazlyn Oliver grieving the loss of their loved one. Officer Kite noticed a few odd things about the apartment where Marco suffered his cardiac arrest. Among these things was a

Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry).

A target payback period will be set by the company and the proposals that recover their initial cost within this time will be acceptable. If a comparison is made between two or more options then the choice will be project with the fastest payback.

The use of an accounting rate of return also underscores a project 's true future profitability because returns are calculated from accounting statements that list items at book or historical values and are, thus, backward-looking. According to the ARR, cash flows are positive due to the way the return has been tabulated with regard to returns on funds employed. The Payback Period technique also reflects that the project is positive and that initial expenses will be retrieved in approximately 7 years. However, the Payback method treats all cash flows as if they are received in the same period, i.e. cash flows in period 2 are treated the same as cash flows received in period 8. Clearly, it ignores the time value of money and is not the best method employed. Conversely, the IRR and NPV methods reflect that The Super Project is unattractive. IRR calculated is less then the 10% cost of capital (tax tabulated was 48%). NPV calculations were also negative. We accept the NPV method as the optimal capital budgeting technique and use its outcome to provide the overall evidence for our final decision on The Super Project. In this case IRR provided the same rejection result; therefore, it too proved its usefulness. Despite that, IRR is not the most favorable method because it can provide false results in the case where multiple negative

In fully investigating all of our calculations we are fully invested in using the Net Present Value figures we calculated as a means of ranking the eight projects. In doing so we found reasons in which why the Net Present Value was our benchmark for ranking the projects and why we did not use the Payback Method. The Payback Method ignores the time value of money, requires and arbitrary cutoff point, ignores cash flows beyond the cutoff date, and is biased against long-term projects, such as research and development and new projects. When comparing the Average Accounting Return Method to the Net Present Value method we found that the Average Accounting Return Method is a worse option than using the Payback Method. The Average Accounting Return Method is not a true rate of return and the time value of money is ignored, it uses an arbitrary benchmark cutoff rate, and is based on accounting net income and book values, not cash flows and market values. Plain and simply put, the Net Present Value method is the best criterion to use when ranking these eight

Internal rate of return (IRR) and Payback period “IRR of a project provides useful information regarding the sensitivity of the project’s NPV to errors in the estimate of its cost of capital” (Pierson et al.2011, pp.157).This proposal also shows the project is profitable by using Excel to get the IRR of 18.9%, which is

1. The time value of money is a concept that reflects that money changes value over time. The primary factor that causes this change is inflation. Essentially, as the result of inflation money received in the future is not worth as much as money received today (Carther, 2012). Simply, one cannot buy as much with a future dollar as one can buy with a dollar today. The time value of money concept is applied to finance to allow people to gain a more accurate reflection of the value of future cash flows.

The time value of money serves as the foundation of finance. The fact that a dollar today is worth more than a dollar in the future is the basis for investments and business growth. The future value of a dollar is based on the present dollar amount, interest rate and time period involved. Financial calculators and tables can assist in computing the future and present values, which eases the pain of the mathematically challenged. Yield or rate of return can also be calculated.

This project evaluates the discounted Net Present Value which shows the estimated cash flow. The cash flow forecast is for 10 year which incorporates International complexities as well as the cost of capital.