Capital budgeting decisions

 

 

In what types of situations would capital budgeting decisions be made solely on the basis of project’s net present value (NPV)? Identify potential reasons that might drive higher NPV for a given project. Substantiate your response by providing an example to explain your thought process.

Sample Solution

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is the result of calculations that find the current value of a future stream of payments, using the proper discount rate. In general, projects with a positive NPV are worth undertaking while those with a negative NPV are not. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. NPV is the result of calculations that find the current value of a future stream of payments, using the proper discount rate. Situations where capital budgeting decisions would be made solely on the basis of project’s net present value is when other capital budgeting techniques provide the same answer. For example, if you have three projects and they all have the same payback period of five years, it means NPV will be the deciding factor.

According to Lizardo (2008), other inhibiting factors to the emergence of a unified definition are results of some of the already existing definitions of the concept proffered by authors in the field. Lizardo asserted that the extant definitions fall within the ambience of vagueness or over specificity; place salience on some terrorism elements or the various groups that execute acts of terror (p. 91). Considering the broad frame of violent groups that employ this tactic, arriving at a definition would be challenging. For Grob-Frizgibbon (2005), some of the definitions are too inclusive (p. 235), while neglecting the vast applicability of the strategy as well as the distinctions between the groups that adopt the approach. According to the author, the all-embracing nature of the definition of terrorism, does not account for the differences in state – and sub-state terrorism; as well as the distinctions between the objectives of the diverse categories of sub-state terrorism (national, revolutionary, reactionary and religious terrorisms) (p. 236).

The border and membership (BM) and stretching and travelling (ST) problems of the terrorism concept as expounded by Weinberg, Pedahzur and Hirsch-Hoefler (2004, p. 778-779) to a large extent sum up the challenges that may have contributed to the lack of a generally accepted definition. Regarding the BM, the authors highlighted the difficulties in distinguishing terrorism from other forms of political violence, such as insurgencies, guerrilla warfare, and civil wars. Terrorism also encounters literal and analytical STs. While literal STs are a product of the author’s geographical or psychological distance from the terrorist act, which ultimately determines what event is tagged a terrorist act, or an uprising; analytical STPs occur as a result of over generalisation of the concept. Collier and Mahon described it as follows:

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