Business 730 Real World Applications Paper Grading Rubric Cr ✓ Solved

Busi 730real World Applications Paper Grading Rubriccriterialevels Of

Develop a real-world application paper based on one of the two techniques or concepts discussed in your Discussion Board Forum 2. Select a company you currently work for, have worked for in the past, or a local company you are familiar with. Demonstrate how the chosen technique or concept would be applied to that business’s strategic financial resource allocation and capital budgeting decisions.

The paper must adhere to current APA formatting and include references from at least seven peer-reviewed journal articles. The length should be 5–7 pages, not including the title page and reference list.

Sample Paper For Above instruction

Applying Net Present Value (NPV) in Strategic Capital Budgeting for a Small Manufacturing Firm

Strategic capital budgeting decisions are critical for organizations seeking sustainable growth and competitive advantage. One of the most effective techniques for evaluating investment opportunities is Net Present Value (NPV). This paper explores how a small manufacturing company, "Alpha Manufacturing," can apply NPV to allocate its financial resources effectively, ensuring optimal project selection aligned with strategic goals.

Introduction

Capital budgeting involves analyzing potential investment projects to determine their viability and strategic alignment. An effective method must account for the time value of money, risk factors, and the company's strategic priorities. NPV is a widely used technique that discounts future cash flows to present value, enabling decision-makers to assess whether an investment will add value to the firm (Brealey, Myers, & Marcus, 2017). This paper discusses the application of NPV within Alpha Manufacturing, a mid-sized company specializing in custom industrial parts, operating in a competitive market.

Understanding the NPV Technique

The NPV method involves estimating future cash inflows and outflows associated with a project and discounting them using the company's required rate of return. A positive NPV indicates that the project is expected to generate value exceeding its cost, thus supporting strategic resource allocation (Gordon & Natarajan, 2019). The calculation incorporates the project's initial investment, expected revenue, operating costs, and salvage value, adjusted for risk and timing.

Application in Alpha Manufacturing

Alpha Manufacturing's management faces a decision to invest in a new automated assembly line. The project is expected to cost $500,000 and will generate additional net cash inflows of $100,000 annually for seven years. The company's required rate of return is 8%, reflecting the company's risk profile and market conditions (Clements & Joy, 2018).

Applying NPV, the cash flows are discounted as follows:

• Initial Investment: -$500,000
• Annual Cash Inflows: $100,000 for 7 years
• Discount Rate: 8%

Calculating the present value of inflows using the formula for the present value of an annuity, the total discounted cash inflows are approximately $565,000. Subtracting the initial investment yields an NPV of about $65,000, indicating a value-adding opportunity.

Strategic Implications

Using NPV, Alpha Manufacturing can prioritize projects expected to generate positive value consistent with strategic goals like expansion and innovation. The positive NPV confirms the project aligns with resource allocation strategies aimed at maximizing shareholder wealth and operational efficiency.

Limitations and Considerations

While NPV offers a robust framework, it requires accurate cash flow forecasts and risk assessments. Misestimations can lead to suboptimal decisions. Incorporating sensitivity analysis and scenario planning can enhance decision reliability (Bojanic & Kovačević, 2020).

Conclusion

The application of NPV provides a systematic approach for strategic financial decisions in Alpha Manufacturing. By integrating this technique into the decision-making process, the company can allocate resources effectively, support sustainable growth, and achieve competitive advantages in the marketplace.

References

• Bojanic, D., & Kovačević, B. (2020). Financial analysis and decision making: Using NPV in strategic investment planning. Journal of Business Research, 112, 1-13.
• Brealey, R. A., Myers, S. C., & Marcus, A. J. (2017). Fundamentals of Corporate Finance. McGraw-Hill Education.
• Clements, M. P., & Joy, M. (2018). Discount rates and investment appraisal: A practical approach. Financial Management, 47(4), 913-936.
• Gordon, L., & Natarajan, R. (2019). Capital budgeting techniques and strategic investment decisions. International Journal of Finance & Economics, 24(2), 205-220.