Management and Organizational Studies 2310A/B Chapter Notes - Chapter 4: Financial Plan, Planning Horizon, Capital Budgeting

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Shang Tang

Document Summary

Worst case- pessimistic assumptions, emphasize a divisions ability to withstand significant economic adversity, require details concerning cost cutting and divestiture & liquidation. Best case- optimistic assumptions, potentially involving new products and expansion: what can planning accomplish, examining interactions- helps management see the interactions between decisions. Link between investment proposals for operating activities and financing choices available: exploring options- gives management a systematic framework for exploring its opportunities. Develop, analyze & compare different scenarios consistently: avoiding surprises- helps management identify possible outcomes and plan accordingly. Some items tend to vary directly with sales, while others do not. Financial planning method in which accounts are projected depending on a firm"s projected sales level. Statement of comprehensive income: costs may vary directly with sales, costs / sales = % of sales, new sales x % of sales = new cost. Initially assume that all assets, including fixed, vary directly with sales: ratio of total assets to sales- capital intensity ratio.