Respond To A Description Of The Important Factors In Additio

Respond Toa Description Of The Important Factors In Addition To Qu

Respond to a description of the important factors, in addition to quantitative factors, that were considered when making a capital budgeting decision, including how these factors are significant to the company, how to determine the criteria for ranking decisions, a justification for the expected ROI based on these criteria, and an analysis of the relevant factors for specific companies such as Google and Walt Disney.

Paper For Above instruction

Capital budgeting decisions are pivotal for the sustainable growth and profitability of multinational corporations. While financial metrics such as return on investment (ROI), net present value (NPV), and payback period are fundamental, non-financial factors also significantly influence these strategic choices. Recognizing and integrating these qualitative elements ensures a comprehensive evaluation that aligns with the company's strategic goals and stakeholder expectations.

Important Non-Quantitative Factors in Capital Budgeting

In addition to the straightforward quantitative analysis, various qualitative factors shape the decision to undertake large capital projects. These include assessing technological compatibility, operational efficiencies, strategic alignment, stakeholder satisfaction, risk management, and the potential to gain a competitive advantage. For example, when Google considered implementing a new computer network system in 2018, they evaluated whether the upgrade would enhance operational processes, support future growth, and meet stakeholder expectations (Google Financial Reports, 2018). Technological compatibility ensures that the new system integrates seamlessly with existing infrastructure, minimizing disruption and maximizing efficiency. Furthermore, the impact on stakeholder satisfaction—such as improved service delivery for users—serves as a motivating factor aligned with corporate social responsibility.

Significance of These Factors to the Company

These factors are critical because they influence the long-term viability and strategic positioning of the company. Byrd, Hickman, and McPherson (2013) emphasize that a firm's capital structure and debt capacity directly affect these decisions, as they determine how much funding is accessible and what level of risk is acceptable. For Google, investing in a new system that enhances operational efficiency could provide a technological edge over competitors, thereby increasing market share and stakeholder value. For Walt Disney, the decision to invest in technological upgrades or new product development reflects their core objective — expanding customer engagement and maintaining leadership in the entertainment industry.

Criteria for Ranking Capital Budgeting Decisions

Determining the priority of investment options involves multiple criteria, including cost, availability of funds, risk level, strategic fit, and potential return. These factors collectively ensure that investments support corporate goals while maintaining financial health. According to Byrd et al. (2013), an optimal mix of debt and equity maximizes firm value, implying that capital allocation should also consider the firm's target capital structure. When prioritizing projects, I believe that no single criterion should overshadow others; instead, a balanced approach that evaluates each factor's impact provides the best decision-making framework.

Justification for ROI Calculations and Expectations

ROI is a vital metric for assessing investment effectiveness. It allows firms to compare projects and allocate resources efficiently. Ichsani and Suhardi (2015) define ROI as the ratio of net gains from an investment to its cost. For Google, the 2018 profits of $39.2 billion suggest an investment of approximately $3.9 billion—10% of profits—would yield an ROI of about 43.6%, indicating a highly profitable venture. This high ROI justifies the capital expenditure if it leads to increased operational capabilities and long-term earnings growth.

Similarly, for Walt Disney, with revenues of approximately $69.57 billion in 2019, a 10% investment amounts to nearly $6.96 billion. To justify such an investment, Disney needs to evaluate whether this expenditure enhances operational efficiency, supports new product development, or facilitates market expansion. Using traditional metrics like NPV and internal rate of return (IRR), Disney can prioritize investments with the highest value addition, while also considering strategic utility—such as brand reputation, market positioning, and innovation potential.

Assessment of Relevant Factors for Google and Walt Disney

Google's investment decisions often revolve around technological innovation, operational enhancement, and maintaining a competitive advantage. The company's focus extends beyond immediate financial returns to include strategic fit, market positioning, and risk mitigation (Google Financial Reports, 2018). For example, upgrading the computer network system can reduce latency, improve data processing, and support scalable growth, all of which bolster Google's technological supremacy.

In contrast, Walt Disney's decision to allocate funds involves a broader scope of strategic considerations. Disney must evaluate project need, customer engagement, brand integrity, and compliance with regulatory policies. Given its diversified business model—encompassing theme parks, media networks, and entertainment content—the company also considers how investments foster synergies across divisions and extend into new markets (Knight, 2015). For Disney, utility—evaluating the strategic value of projects—may often outweigh traditional ROI metrics, especially when investments serve to enhance customer experience, mitigate risks, or secure long-term growth.

Conclusion

In sum, effective capital budgeting requires balancing quantitative metrics with qualitative factors that influence long-term success. For Google, technological enhancement projects are justified by their strategic importance and high ROI prospects, whereas Disney emphasizes project need and strategic fit to sustain its competitive advantage. Both companies illustrate the importance of a holistic approach to capital decision-making, incorporating financial returns with non-financial considerations such as strategic alignment, risk management, and stakeholder value. Integrating these elements ensures that capital investments support not only current financial health but also future growth and innovation.

References

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance. Retrieved from https://someurl.com

Ichsani, S., & Suhardi, A. R. (2015). The Effect of Return on Equity (ROE) and Return on Investment (ROI) on Trading Volume. Procedia - Social and Behavioral Sciences, 211, 896–902.

Google Financial Reports. (2018). Google Inc. Annual Report 2018.

Walt Disney Company. (2019). Annual Report 2019. Retrieved from https://thewaltdisneycompany.com

Knight, P. (2015). Investment appraisal methods and evaluation. Journal of Business Finance & Accounting, 42(5-6), 645-663.

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