FINE 2000 Lecture Notes - Lecture 1: Organize, Changes One (Charles Mingus Album), Sensitivity Analysis
15 Sep 2016
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Document Summary
For most firms, investments are evaluated in two stages. Proposed capital budget investments each division would like to invest in. Many investment proposals come from the bottom up. But sometimes the ideas are likely to come from higher up: ex: higher ups can see potential benefits of closing divisional branches/consolidating, divisional mangers cannot be expected to see this. Capital investment choices should reflect both bottomup and topdown processes capital budgeting and strategic planning (these two should complement each other) Type of backup information you need to provide depends on project category, some firms use a fourfold breakdown: outlays required by law or company policy. The main issue is whether requirements are satisfied at the lowest possible cost. The decision is likely to hinge of engineering analyses of alternative technologies: maintenance or cost reduction, such as machine replacement. New machines have to pay their own way: capacity expansion in existing businesses.
