question archive William Paterson UniversityFIN 6550 Financial and Economic Global Strategy Multi-National Capital Budgeting Capital budgeting is a management function used for making decisions on whether a firm should accept or reject a long-term project or investment
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William Paterson UniversityFIN 6550
Financial and Economic Global Strategy Multi-National Capital Budgeting Capital budgeting is a management function used for making decisions on whether a firm should accept or reject a long-term project or investment. It is a planning process of allocating funds to long live projects such as new plants, new products, new equipment, new machinery which are worth pursuing. The multi-national corporations (MNCs) uses capital budgeting approaches to evaluate and compare the benefits and costs of their investment projects in their subsidiaries. These corporations determine the investments NPV by computing the present value of investment’s future cash flows and subtracting from the initial investment made on the project.
Importance of Capital Budgeting to MNCs
Most of the investments made by MNCs are irreversible and costly which means the company cannot easily sell them at a reasonable price.
The funding of these projects affects the overall profitability of the parent firm If the investment is not successful or does not meet the expected standards, they may result in huge financial losses which would impact the firm’s future cost structure
Using the capital budgeting, the company can determine which projects in worthy implementing and which should be rejected. This is the most important reason for using capital budgeting in MNCs. Most of the projects requires heavy funding. Therefore a thorough evaluation would be required to determine the acceptability of the projectct
IKEA Furniture Case Discussion Questions
1. By the early 1970s, IKEA had established itself as the largest furniture retailer in Sweden. What was the source of its competitive advantage at that time?
2. Why do you think IKEA’s expansion into Europe went so well? Why did the company subsequently stumble in North America? What lessons did IKEA learn from this experience? How is the company now applying these lessons?
3. How would you characterize IKEA’s strategy before its missteps in North America? How would you characterize its strategy today?
4. What is IKEA’s strategy toward its suppliers? How important is this strategy to IKEA’s success?
5. What is the source of IKEA’s success today? Can you see any weaknesses in the company? What might it do to correct these?
Toyota Corporation Case Questions
1. Why do you think Toyota waited so long to move much of its manufacturing for European sales to Europe?
2. If the British pound were to join the European Monetary Union would the problem be resolved? How likely do you think this is?
3. If you were Mr. Shuhei, how would you categorize your problems and solutions? What was a short-term problem? What was a long-term problem?
4. What measures would you recommend that Toyota Europe takes to resolve the continuing operating losses?
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