Change and Continuity in L’Oreal

Change and Continuity in L’Oreal Introduction There have been plenty of cosmetics that have been produced and released in the market by various companies in the previous five years. The reason behind this is that more and more people especially women are becoming more conscious of their physical appearance that they are prepared to spend their hard earned money even on expensive but high quality and effective cosmetics. While the cosmetics industry is comprised of many companies that offer unique cosmetics at varying prices, it remains clear the LOreal remains as one of the more dominant and successful organizations at present. Since its establishment in 1909, LOreal has since become a significant force to reckon with in the cosmetics industry (LOreal Official Website, 2010). The advent of globalization has enabled the company to diversify its products to cater to various target markets with distinct beauty needs. Because of the massive profits that LOreal consistently gets from its local markets, the company has been able to effectively allocate its financial resources towards its expansion activities that have helped solidify the companys dominant position in the cosmetics industry. Guided by the effective leadership headed by CEO Jean-Paul Argon, LOreal has amazingly continued to make strides even in the presence of the global economic crisis that has resulted in many of its competitors experiencing significant declines in productivity and profitability. It is clear that the deep wealth of financial and human resources of LOreal along with the effective strategies to take advantage of the benefits provided by globalization has helped sustain the productivity of the company and it is expected that LOreal would be able to maintain its strength in the next couple of years. Part A: Internal / External Analysis Internal Analysis: Strengths LOreal is very much a recognized and admired company in the field of cosmetics. The organization is actually the most dominant and productive cosmetics producer over the past decades. This dominance consistently allows LOreal to attract more followers and convert them as loyal customers by making them satisfied with the beauty products that they buy. The growing population of LOreal has always been the stable source of revenues for the organization which makes it easy for them to achieve financial strength. The effective leadership of LOreal is doing a great job in adjusting the organizations plans and initiatives based on the latest trends in the cosmetics industry. This signifies the dedication of the management to maintain the positive image of the organization by always offering the more reliable beauty products that people will really enjoy and love. LOreal functions under the principle that to maintain its top position in the cosmetics industry, the focus and emphasis of their activities have to be geared to what their customers really aim for in terms of being beautiful (Begoun 2004, p. 560). LOreal does not take chances and is noted for making smart moves to beat its competitors in launching the most innovative beauty products all the time. LOreals cosmetics do not really come at cheap rates but the huge number of loyal customers is a sufficient proof that these products really work. LOreal is also known for its remarkable capability to always be the first company to find the latest beauty ingredients that will work well. The organization possesses deep financial resources to use in extensive research efforts that will help them to check the typical beauty problems of people. Consistent assessments of the cosmetics of LOreal are also being undertaken so that the organization is assured of the sustained effectiveness of their products. Any moves done by its competitors are also being monitored by LOreal for the organization to be able to respond quickly with better products and initiatives. Internal Analysis: Weaknesses The major point of vulnerability of LOreal is the alarming truth that the organization seems to neglect the idea of selling its cosmetics to the people belonging to the lower classes. The inability of the organization to keep in touch with the lower classes is a huge obstacle that continuously denies them the opportunity to clearly separate itself from the rest of its rivals. Because the prices of LOreal products are not considered as budget friendly among the lower class families, they are consistently being beaten by their rivals in this market segment (Kapferer 2008, p. 379). This is absolutely where the rivals of LOreal are striking back in an effort to somehow catch the company The usual criticism that LOreal receives regarding its cosmetics is that they are only made for the wealthy people to enjoy. The advertisements of LOreal boast of the numerous celebrities that endorse their products, and these send the wrong signals especially to the people belonging to the lower classes that these beauty products were not intended for them to use. This has sparked rumors that LOreal is biased when selecting their target markets that will use their cosmetics (Turner 2005, p. 226). This negative publicity and the failure of the organization to clarify these nasty rumors have somehow cast doubts even on their loyal customers regarding the true intentions of the organization. Critics also always question the corporate social responsibility initiatives of LOreal. Since LOreal has diversified its operations in numerous locations involving more than 80 countries, an evident weakness is that handling and monitoring its global activities have truly turned into significant challenges for the company. It only becomes harder for the company on the areas where LOreal products are not really very much patronized by the public due to the expensive prices and lack of familiarity. If LOreal is not going to do anything to improve its poor status in these countries, their competitors will someday take advantage of these weaknesses and may displace them at the top of the cosmetics industry. External Analysis: Opportunities LOreal is always presented the opportunity to offer its loyal clients with the best cosmetics that are impossible for their competitors to imitate. Even though the company is criticized for its selective target marketing initiatives, it could always help to silence their critics by always coming up with high quality products that are reasonably priced. The company has to continue taking advantage of its excellent research and development team that has proven its capabilities time and time again. The chance to respond to the criticism that LOreal is afraid to deal with the consumers from the lower classes must be grabbed by the company to once and for all settle this issue. Perhaps an important move connected to this would be finding ways to make their products more affordable for the public (Capon 2008, p. 263). This way, the consumers from the lower classes can be able to start appreciating the cosmetics of LOreal and not simply dream of using them just like what they always see and hear in the advertisements. It is always important that the consumers feel that their needs are being addressed by the companies whose products they patronize. LOreal can still keep on searching for other struggling cosmetics organizations and perhaps make intensive moves to acquire them to further expand their operations and strengthen their grip at the top spot in the cosmetics industry. It is no secret that the ongoing financial crisis has affected most companies and minimized their effectiveness, but remarkably LOreal has stayed strong even through the tough circumstances (Tang 2008, p. 20). The deep resources of the company significantly helped them to coast along the difficult stretch of 2008 and 2009 when the financial crisis struck. By making efforts to acquire or strike partnership deals with other smaller cosmetics companies, manufacturers and suppliers, LOreal can be able to take advantage of the financial crisis to pull away from their competitors and pounce on the problems that continue to hound them. External Analysis: Threats Since LOreal is the most dominant cosmetics company at present, the rest of the field is always waiting for any potential mistakes that LOreal is going to make so they can take advantage and pull themselves closer to the top (Doz 2001, p. 44). The intense rivalry is very typical in the cosmetics industry, and if LOreal becomes complacent and starts underestimating the capabilities of their competitors to beat them in sales and profits, it could be a costly mistake and something that the company could regret later on. Whether LOreal admits it or not, the financial crisis sooner or later will become an imminent problem that they will have to deal with especially if the crisis extends for the next two to three years. It can become more problematic if LOreal fails to adjust the prices of its beauty products, as the financial crisis has made most people to hesitate spending their money on expensive beauty products. Therefore, LOreal cannot simply keep relying on its deep financial resources to save them from the impacts of the financial crisis because eventually they will get depleted if even their loyal customers decide to refrain from buying their cosmetics. It is a must for LOreal to be able to find other ways to sustain their financial stability and make contingency plans in case the number of their loyal customers begins to decrease. LOreals promotional activities have also been attacked by critics for being biased and providing statements about their products that are merely lies (Sandhusen 2008, p. 52). These are absolutely not good for the long term progress of the company, as these controversies will forever be remembered by the public which could prevent LOreal from stabling bigger and stronger customer bases. The image of the company may be that of a dominant organization in the cosmetics industry, but if the public would believe that they are involved in illegal and unfair practices, they would eventually be losing majority of their precious clients. Summary What LOreal has to focus on is guaranteeing that they continue to capitalize on their strengths while their vulnerabilities are identified and resolved immediately. The various strengths of LOreal are unique and have been obtained through the hard work and commitment of the company to excellence. It would only be logical for LOreal to keep utilizing their strengths to their advantage given that its competitors are still struggling to the impacts of the economic crisis. The company also has to be resilient to monitor any available opportunities that could emerge and should not hesitate to grab them. LOreal, though, must be extra careful because their competitors are always significant threats to their dominance in the cosmetics industry. They need to pay close attention to their activities especially their marketing programs that have been the subject of controversies and fix the issues immediately. Task 2: Globalization and LOreal How globalization influences policies and decision making in LOreal The advent of globalization has had significant impacts on the policies and decision making of LOreal. Globalization has enabled LOreal to formulate policies that are geared towards utilizing its distinct operational structures to produce cosmetics that can be well appreciated by the public consumers all over the globe (Floyd 2004, p. 77). The policies of LOreal have always been based on globalization, and these include addressing the beauty needs of clients all over the globe, utilizing its resources to produce the best cosmetics, advocating diversity in their workforce to obtain better capabilities, improving its knowledge of world trends in cosmetics as well as establishing effective partnerships with providers and manufacturers all over the world to enhance the outputs and minimize their expenses. Through creating policies and decisions that aim to sustain LOreals dedication in offering the best beauty products to its global clients, the company believes that it is able to use globalization to its advantage. LOreal is aware that establishing a global presence is important for them to achieve success, which is why their policies and decisions are geared toward being involved in the cosmetics industries all over the world. LOreal aims to help establish an excellent business environment all over the world while expanding its operations in various sectors (Haig 2006, p. 27). For LOreal, globalization signifies the necessity for them to broaden its operations to enable more individuals from different cultures to get to know and use their beauty products. This global expansion initiative, though, is being done by the company in an organized and effective manner. LOreal has effective guidelines that help safeguard the environment of the foreign countries where they have operations. T he company also offers employment opportunities that are loaded with excellent incentives. They also have policies in interacting effectively with their providers to advocate the maintenance of excellent guidelines in the production of cosmetics. Of course, LOreal does not forget to recognize the policies and traditions of their global partners for development. The advent of globalization has also heavily influenced the policies and decisions of LOreal with regard to workforce diversity. LOreals policies and decisions are geared towards improving its operations through harnessing the knowledge and skills of their workforces all over the global and getting their precious suggestions and contributions. The company understands that the presence of globalization implies the need for them to rely on their diverse workers and address their typical concerns. The policies of LOreal also include guidelines to coordinate with the leaders of foreign countries where they have operations in offering sources of livelihood for their people in exchange for the continued stay of LOreal. This way, the company is able to maintain good relations with more than 80 countries where they currently have production plants and offices. It has become very clear for LOreal that to achieve global dominance in the cosmetics industry of the world, they have to use the diversity of their workforces to their advantage (Finkelstein 2007, p. 132). While the company has successfully expanded its operations in various continents, it remains a challenge for LOreal to penetrate certain underdeveloped countries due to cultural and language barriers. This is the reason why the management is working to break these barriers through new policies that will enable the company to finally penetrate in these tough locations that will contribute to their long term success. LOreal also has policies that aim to build strong relationships with its global business partners, including material providers and manufacturers. This is based on the philosophy of the company that it cannot achieve success by relying only on its own efforts. The company understands that by encouraging the participation and support of other important business organizations, LOreals aim to succeed can have a better chance to happen (Khanna 2010, p. 101). This structure of operation also helps the company to delegate its responsibilities effectively and trust that their business partners will be able to accomplish the tasks and responsibilities given to them by the LOreal management. Another impact of globalization in the policies and decision making of LOreal is the obvious focus on recognizing the rights, traditions, beliefs and norms of every foreign country where they have operations. The company understands that they have to be careful not to violate any of these international laws and policies if it wants to remain productive in these foreign locations. The policies of LOreal in this regard require the constant communication of the corporate leaders and the government representatives to discuss effectively the guidelines and other agreements that need to be approved. This way, any unexpected problems or concerns that could happen in the international locations can be easily resolved and their potential negative impacts are significantly minimized. Part of the policies of LOreal in respecting the international laws of their global business partners is the policy of maintaining the cleanliness of the environment. As LOreals products involve chemical wastes, the company assures the governments of their global business partners that waste disposal is always done effectively to prevent environmental damage and other hazardous impacts. Critically evaluate the effectiveness of LOreals response to globalization In terms of addressing the beauty needs of clients all over the globe, LOreal has mostly been successful in this regard. LOreal views the existence of globalization as a force that makes the beauty needs of their global clients even more complicated. This is because the existence of globalization can easily change the mentalities of people through what they see, heat and read in the media (Mueller 2004, p. 180). This means that what the beauty products that they might like today may be irrelevant for them tomorrow. However, because of the competent and hard working research and development team of LOreal, the changes in the consumer trends and behavior are easily monitored and thoroughly evaluated by the company. The successful response of LOreal to globalization in terms of addressing the needs of their global customers can be attributed to the hard work of its research and development team. The advent of globalization has also challenged LOreal to utilize its resources effectively to produce the best cosmetics. This is because globalization has also been beneficial to the competitors of LOreal. Its competitors have also acquired the new technologies, information and expertise that have significantly improved their operations and their chances to topple LOreal at the top of the cosmetics industry (Kurtz 2009, p 45). However, LOreal has been able to prove time and time again why it would be hard for its competitors to displace them at the top. Under the guidance of effective leaders, LOreal has consistently been able to maximize the depth of its financial and technological resources to create unique, innovative and relevant beauty products that cater to the beauty needs of its global clients. LOreal has never shown any hesitation to spend significant amounts of money in order to always be the first company to launch cosmetics that can catch the attention of global consume rs. LOreal has also been effective at responding to the challenges of globalization through the presence of diversity in their workforce to obtain better capabilities. With its global operations anchored on the strong contributions of its more than 100 production sites with almost 60,000 workers coming from various cultural backgrounds, LOreal has been successful in maximizing the availability of the skills, knowledge and expertise of its diverse workforce to its advantage. It is quite evident that the presence of globalization has made it mandatory for companies to really use a diverse workforce to be able to cope up to the challenges that it presents (Morck 2005, p. 211). The success of the response of LOreal to globalization in this aspect can be directly attributed to the excellent work of the human resources department of the company. The department is able to effectively select the right combinations of people from various cultures to handle the responsibilities inside the company, and does a good job in making sure that the needs and concerns of the employees are always addressed. As a result, the employees of LOreal all over the world are able to contribute significantly to the overall success of the organization. Globalization has always been connected to modern technologies and mass media, and LOreal has successfully used them in improving its knowledge of world trends in cosmetics. The negative consequences of failing to know and understand the latest developments in any market or industry have always been costly and disastrous for companies, which is why LOreal has significantly invested in modern technologies and production equipment as a proof of their readiness and willingness to embrace the challenges brought about by globalization. LOreal does not really worry about the huge funds that it shells out to acquire these technologies and equipment, because it understands that eventually the advantages of their investments would eventually outweigh the expenses. Aside from expanding its operations globally, LOreal has also been successful at establishing effective partnerships with providers and manufacturers all over the world to enhance their outputs and minimize their expenses. Over the last three years, LOreal has engaged in various acquisitions in an effort to cope up to the expansion activities of its competitors as dictated by globalization. Because of globalization, the implementation of free trade has made it easier for the competitors of LOreal to also engage in expanding their operations especially in areas where LOreal has been having difficulties in penetrating. Nonetheless, the strength of the significant acquisitions of LOreal most notably its acquisition of the Body Shop and Sanofi-Aventis is still much better compared to the minor transactions being done by their competitors. Perhaps the only aspect where LOreal has not achieved any satisfactory results is with regard to the environment (Peng 2008, p. 92). It is a well known fact that globalization has been criticized for causing environmental degradation, and the complaints being received by LOreal with regard to waste management are proofs of this. The company has been blamed for polluting water systems due to the chemicals involved in its production wastes, and this has surely caught the attention of the public. Complaints also with regard to the company making use of live animals to test their products have been condemned by animal rights advocates, and numerous protests have been initiated all over the world to stop LOreal from continuing such initiatives. While the company has always denied being involved in these animal testing activities, animal rights groups have yet to be convinced that LOreal is not guilty of these violations. These negativities are definitely undesirable and need to be fixed b y the company before they get blown out of proportions and become more complicated. Areas for improvement in the response of LOreal An important area of improvement for LOreal is concerning its research and development department. This unit deserves to be given credit for its excellent outputs and performances that have enabled the company to maintain its dominant position in the cosmetics industry. It is safe to say that the challenges brought about by globalization in terms of addressing the unpredictable beauty needs of the people have all been shouldered and correctly identified by the tireless researchers of LOreal (Flapper 2005, p. 80). This does not mean though that there is no more room for improvement for this department. The management of the company can keep allocating funds to this department to make sure that the researchers are able to keep doing their studies and activities without any limitations. It is important to remember that the research team is doing its studies on consumer behavior on a global scale, so financial assistance will definitely be needed by the department. The management of cultural diversity among its employees is also an important area of improvement for LOreal. While the company has done a good job in taking advantage of the diverse skills, knowledge and expertise of its employees all over the world, it will be beneficial for the company if there would be clearer methods of conflict resolution especially as cultural diversity is also the usual culprit of frequent disagreements among the employees. It is impossible to think that the employees of LOreal will always agree to all aspects of their work so it will help that methods of conflict resolution are firmly in place. This is an important impact of globalization that LOreal cannot afford to neglect since it could really have negative consequences on the performance of the company. The company is already doing a great job addressing the needs of their global workforce, but ample focus has to also be given to ensure that the diverse employees of LOreal are all on the same page. The use of mass media for its marketing efforts can also be improved by LOreal in response to the challenges of globalization. LOreal has been criticized for unfair advertising practices which have been denied by the company. Nonetheless, to make sure that all these criticisms are answered effectively, perhaps it is now time for the company to step up their efforts in utilizing various types of media outlets to improve its marketing outputs and reach more consumers from faraway places (Rugman 2005, p. 167). The use of Internet as an effective marketing strategy can be an excellent move for LOreal to intensify its marketing efforts and take advantage of its extensive reach. The marketing team also has to monitor the contents of their advertisements to check if there are indeed signs or indications of racial discrimination to prevent unnecessary controversies and issues from emerging. Perhaps the most important area of improvement that LOreal has to focus on is concerning ethics and environmental issues connected to globalization. This has been the major cause of controversies and problems for the company and it is only a matter of time before lawsuits will be filed against LOreal for continuous violations on animal rights and environmental policies. The improvement necessary for this starts with the employees of the company learning to follow the policies especially since they are operating in foreign countries. The management and the employees of LOreal really need to make serious discussions regarding these matters because if they are left unresolved, they will really start pulling the company down. These controversies are not good for the image of LOreal, so the sooner they are able to provide remedies to these problems, the better it will be for the company as they can start concentrating on issues and concerns that are more important than dealing with the co nsequences of their inability to follow policies. Conclusion There is no doubt that LOreal is at present at the top of the cosmetics industry because of its effective strategies that are geared towards taking advantage of its strengths and opportunities as well as reducing the impacts of its weaknesses and the threats being imposed by its competitors. It has also helped the company in having excellent leaders and hardworking, diverse employees. LOreal firmly believes that cultural diversity is an asset for the company, which is why the skills, knowledge and expertise of its employees are always developed to maximize them and put them to good use. Globalization is perceived by LOreal as a challenge and an opportunity to keep improving its operations all over the world. LOreals policies and decisions have undoubtedly been influenced by the impacts of globalization, and the company does not see anything bad at it for as long as the activities that they do are always in accordance to their mission, vision and objectives. The policies of LOreal have always been based on globalization, and these include addressing the beauty needs of clients all over the globe, utilizing its resources to produce the best cosmetics, advocating diversity in their workforce to obtain better capabilities, improving its knowledge of world trends in cosmetics as well as establishing effective partnerships with providers and manufacturers all over the world to enhance the outputs and minimize their expenses. There have also been negative impacts of globalization that LOreal needs to resolve immediately to make sure that they are able to maintain at the top of the cosmetics industry for the long term.

The Invention of Blue Jeans

In 1873 blue jeans were invented by a well known man named Levi Strauss. Blue jeans became popular for farmers and workers, because they were tougher and less likely to rip. Many Americans wore jeans for comfort, too. A 24-year-old German immigrant named Levi Strauss departed from New York with  little supply of dry  materials. He also had the intention of opening  an extension  of his brother's New York business that he was bringing to San Francisco.Strauss did not want to be a prospector, so he decided he would make enough money by selling supplies to the miners. First, Strauss sold cloth, textiles, and sewing supplies to the miners, but he didn't earn much profit by doing that. Then he heard the miners complaining about how easily they ripped their pants, so Strauss decided to use some of his heavy canvas fabric to make the miners pants to wear. The first jeans were made of a material called ‘duck’, but this fabric was not particularly comfortable.Then Strauss made the jeans using fabric called denim. Denim is a tough, cotton fabric which is made by passing under two or more threads. This fabric made jeans much more popular for everyone to wear, not just workers. In 1873, Jacob Davis wrote him a letter saying that he could make durable pockets with metal rivets for the pants. But Davis didn't have enough money to share his idea, so he offered to give his idea to Strauss if Strauss agreed to pay his patent. Strauss agreed, and from then on blue jeans had metal rivet pockets.Then the idea for jeans was to dye them with indigo, to make jeans blue. After that, blue jeans were considered perfect. Blue jeans changed the style of dressing later in history. After they were invented, blue jeans were typically only used for protection. But soon after Strauss changed the fabric to denim, they became comfortable and stylish. American’s then thought of new ideas for jeans, and the styles changed to all different kinds of jeans like skinny jean s, straight leg, boot cut, etc.They initially changed the way of dressing, and the future style of Americans. Blue jeans became popular for farmers and workers, because they were tough, strong, durable pants that everyone could rely on not ripping. They became the apparel that changed America’s style of dressing too, and the most popular type of pants. Jeans are still largely popular, and they will continually be modified to fit the changing style of America.

Structure Capital Budgeting Example For Free - Free Essay Example

Sample details Pages: 11 Words: 3297 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? Major capital investment are a significant operational, organizational and financial stress in any company. But apart from that, these investments are also a managerial stress, since a poorly chosen investment can become a cash hog and cause losses in the end. Because of these reasons, and having in mind that the target of all managers is to increase profits and shareholder value, a controlled process of investment evaluation is needed before every investment. This paper will investigate the process of capital budgeting through the case study of XYZ Company projects. In the first part, we will investigate the literature to identify the methods used in capital budgeting, which will then be applied to the project proposals of XYZ Company in order to select the better project proposal In the second part, we will investigate the options of XYZ Company for Sources of Capital, Capital Rationing and Capital Structure. In the third part, we will explore the effect that the proposed projects in XYZ Company will have on the shareholder value in the longer term (the expected lifetime of the investment) Capital Budgeting Capital budgeting as a process is tasked with planning and evaluation of capital investments. The end result of capital budgeting process is an answer whether and which investments will bring value to the company (Brealey and Myers, 2003; Sheffrin and OSullivan, 2007). While there are multiple ways of generating value for the stakeholders of the company, proper investment in capital assets is one of the most prominent ones. This is simply because capital investments are long-lived, an error in the capital budgeting will be felt for a long time. In order to provide maximum return and value to the shareholders, each manager should engage in a process of analysis of possible investment decisions, using well-known and tested methodologies and approaches. The end result of the analysis should be a ranking of all proje cts by their expected rates of return. In order to maximize value, managers should focus on implementing projects with high expected rates of return. The process of capital budgeting investigates possible future outcomes, and includes multiple analysis methods. Most of these methods observe the incremental cash flows of the possible capital investment and their timing, and do not concern themselves with profit. In order to properly investigate the future outcomes and perform an analysis, the process of capital budgeting uses discounted cash flows, which are applied as Present Value (PV) of future cash flows (International Federation of Accountants, 2008). The two most common methods of discounted cash flows analysis in Capital Budgeting are the Net Present Value (NPV) and Internal Rate of Return (IRR) (Brijlal and Quesada, 2009). The results of these methods are frequently disputed by the literature, but they are still the preferred  ¿Ãƒâ€šÃ‚ ½weapon of choice ¿Ãƒâ€šÃ‚ ½ when performing a financial analysis of a project. In order to minimize the risk of poor project selection, most managers will use multiple methods to confirm their decision. The calculation of NPV represents the current value of the future payoff, and the basic rule is that a project should go ahead only of the NPV is greater than the investment (Brealey and Myers, 2003). The second most frequent method of calculation is the Internal Rate of Return (IRR) (Corelia, 2012), which returns the discount rate at which the NPV is equal to zero (Brealey and Myers, 2003; International Federation of Accountants, 2008; Corelia, 2012). Both these methods are dependent upon the external economic environment, and in order to provide a proper estimate, the analyst must observe the cost of capital, the zero-risk returns as well as the returns of other investments for the same capital (International Federation of Accountants, 2008). The NPV as the most commonly used method gives the difference amount between the present value of the investment to the present value of all future inflows/outflows of money related to the investment. The difficulty of NPV is the proper assessment of the discount rate which includes both risk-free return and market return which is difficult to properly assess. A method that uses the same inputs as NPV is Profitability Index (PI). Instead of subtracting the present value of investment from the present value of future cash flows, it divides the two values, thus resulting in a ratio which presents the amount of value generated. Again, the discount rate of future cash flows must be calculated prior to the calculation of NPV, so both methods have the same weak point. The IRR method takes another approach  ¿Ãƒâ€šÃ‚ ½ it returns the discount value at which the difference between the present value of the investment and the future inflows of money are equal, i.e. the discount rate at which NPV = 0. This gives the analyst a reference point (worst case scenario) of discount which he/she can compare to the factors included in the calculation of the NPV discount rate. If the calculated discount rate is less then IRR, the project returns value into the company. A  ¿Ãƒâ€šÃ‚ ½quick and dirty ¿Ãƒâ€šÃ‚ ½ method of selecting a project is through the calculation of a payback period (PP). The PP calculation simply estimates the time needed for the investment  ¿Ãƒâ€šÃ‚ ½to pay for itself ¿Ãƒâ€šÃ‚ ½  ¿Ãƒâ€šÃ‚ ½ earn the invested amount of money. Projects with shorter payback periods are preferred, but the method ignores two potentially very important elements: the time value of money, and there is no interest in the future cash flows after the payback period (Brealey and Myers, 2002). Capital Budgeting Evaluation of XYZ Project Proposals This chapter will perform Capital Budgeting analysis of the options available to the Management of Company XYZ in the form of project pr oposals for purchase of new press machine. The following table presents the summary of all methodologies of capital budgeting analysis applied to the proposed projects. The full set of tables of the analysis is included in Appendix A through E. We will discuss the results of each methodology. Press A Press B Net Present Value (CAPM) $98,485.65 $88,242.35 IRR 18.86% 21.15% Profitability Index 115.21% 121.14% Payback Period (years) 3.69 3.25 Net Present Value (BYPRP) at 4% risk premium $20,297.69 $37,569.58 All NPV calculations rely on the NPV discount rate which is the indicator of the expected risk premium. The most commonly used risk premium calculation method is the Capital asset pricing model (CAPM). R_i=R_f+ ¿Ãƒâ€šÃ‚ ½(R_m-R_f) Where R_i is the expected return on the capital asset, R_f is the risk-free return, R_mis the expected return of the capital market and  ¿Ãƒâ€šÃ‚ ½ is the sensitivity. This is the most common and basic NPV ca lculation, and using this calculation we arrive at a higher NPV for Press A then Press B, thus indicating Press A as the better choice. As a second methodology, an Internal Rate of Return (IRR) is calculated, which returns the risk premium level at which the project will yield an NPV of 0. The IRR for Press A is 18.86% while the IRR for Press B is 21.15%. The IRR calculation puts Press B at an advantage, since Press B will bring value if the risk premium is higher then Press A, up to 21.15% Although NPV is considered superior to IRR (Wong, 2000), Since the two most common methodologies for capital budgeting did not yield the same result, additional capital budgeting methods need to be applied to properly choose the optimal investment. Another method of evaluating the project value, which supplements IRR is the Profitability Index (PI). PI is an indicator of the quantity of value that is created per dollar/unit of investment. The PI takes into account the time value of money by calculating the present value of future cash flows. In the case of XYZ Company, the PI index is more favorable to Project B, which returns more then 1.2 dollars per dollar invested, while Project A returns only 1.15 dollars per dollar invested. The payback period (PP) is also calculated for both projects, as a quick test of recouping the investment, without taking into account the time value of money. The PP value for project A is 3.69 years, while project B will pay for itself in 3.25 years, thus again putting Project B at an advantage over Project A. CAPM methodology was applied for calculation of discount rate used in NPV and PI. This methodology is met with discussion (Magni, 2009), which may indicate a use of another methodology for discount rate calculation. This approach is also supported by (Brigham and Ehrhardt, 2011), which identify the Bond Yield Plus Risk Premium (BYPRP) method of calculating the discount rate as the approach when wishing to adjust the disco unt rate and include the company ¿Ãƒâ€šÃ‚ ½s judgmental risk on the cost of equity. (Brigham and Ehrhardt, 2011) conclude that the judgmental risk premium is applied by adding between 3% and 5% to the CAPM discount rate, depending on historical trends and future estimates. Applying the higher risk discount rate should be primarily applied to the Press A investment due to it ¿Ãƒâ€šÃ‚ ½s higher cost and therefore greater exposure to debt, but we have applied it to both Presses, just to simulate worst case scenario on both presses. To apply the judgmental risk into the calculation we will recalculate the NPV using Bond Yield Plus Risk Premium model for calculating the NPV discount rate. We will take a more risk-averse position and apply a risk premium of 4% After applying the BYPRP discount rate to NPV, the NPV results in a higher value for Press B, thus confirming the results given by IRR, PI and PP. In order to view the movement of NPV in relation to risk, w e created a simulation on multiple levels of risk premium. The following diagram presents a simulation of NPV of both presses for varying levels of additional risk premium, from 1% up to 7% risk premium. Press A is a better choice and will return more value only in very low risk scenarios (0% and 1% additional risk). For anything above 1% risk premium, the NPV of Press A drops much faster than Press B, and it is a worse choice of the two. Additionally, the diagram indicates that Press B will still return value even at very high levels of additional risk premium (7%) while Press A will create a loss at a judgemental risk level just above 5%. Capital Rationing of XYZ Project Proposals The general results of the analysis show that both projects will return value, and in the ideal world of infinite capital both investments can be started. However in a more realistic scenario of very limited financial resources, the choice of the project will be determined not only by it ¿Ãƒ ‚ ½s estimated returns but also by the available capital resources. The process used to prevent a company from  ¿Ãƒâ€šÃ‚ ½spreading too thin ¿Ãƒâ€šÃ‚ ½ is known as capital rationing. The case of XYZ has two viable projects, and we will observe two possible scenarios with different available resources Scenario A  ¿Ãƒâ€šÃ‚ ½ Low resources  ¿Ãƒâ€šÃ‚ ½ slightly less or equal to value of Press B  ¿Ãƒâ€šÃ‚ ½ this is a very simple scenario, with only one logical project selection  ¿Ãƒâ€šÃ‚ ½ Press B. Scenario B  ¿Ãƒâ€šÃ‚ ½ High resources  ¿Ãƒâ€šÃ‚ ½ slightly less or equal to value of Press A  ¿Ãƒâ€šÃ‚ ½ this scenario has two possible projects available  ¿Ãƒâ€šÃ‚ ½ either Press A or Press B. The NPV analysis concluded that Press A is a better project, but the IRR and PI analyses are favoring the Press B as a better choice. Also, if we use the modified NPV (BYPRP) which includes external risk, press B becomes much more promising, especially if the company has a pessimistic outlook of the future. The Scenario B presents a very simplified version of a real process of decision making regarding capital budgeting and rationing. There are cases in which NPV will fail to identify the real superior project (Wong, 2000). Even if NPV is still the most common method (Brigham and Ehrhardt, 2011) for capital budgeting and investments, managers are encouraged to apply multiple methodologies (Ryan and Ryan, 2002; Wong, 2000; Brigham and Ehrhardt, 2011). Since the regular methodologies of capital budgeting can yield different results, and each of them has different shortcomings, a necessity arises for a wide-encompassing approach to the risk and changes during the length of the project. A new method that is being used in this analysis is the Real Options (RO) method (Chen, 2012), which investigates the options that a company has in each projects, in it ¿Ãƒâ€šÃ‚ ½s size, timing and operation s. This method is a complex mathematical modeling method and is not unlike the modeling of financial derivatives. Financing options for the XYZ Project Proposals In order to provide financing for a project, a company can use one or more of the three general sources of capital: shareholder equity, debt or retained profit. All of these sources have different good and bad points associated to each of them. Shareholder equity is available to companies who are listed on stock exchange. The good point of this source of capital is that there is no interest, nor obligation to repay this capital in a given time frame. On the flip side of the coin, shareholders will provide equity for a piece of ownership in the company. This means that ownership structure may shift, and the company may possibly fall prey to shareholder interest disputes. Retained profit is the simplest way to finance an internal project within a company. There is no interest to pay, and is a very good way of main taining growth in conditions where cost of capital is high. The bad side of this source of capital is that the owners of the company expect the profit as their own money, and the company will require the consent of the owners in order to use retained profit for investments. Debt is usually observed as the principal method of financing projects, which maintains the ownership structure and control, and does not reduce the profits of owners. Also, having debt provides tax benefits for the company. The issue of debt is it ¿Ãƒâ€šÃ‚ ½s timing and cost  ¿Ãƒâ€šÃ‚ ½ there is a responsibility to repay the debt within a given time frame, and to pay interest on the borrowed capital. During periods when interest rates are high and spare capital is hard to find, obtaining debt can be prohibitively expensive, or increase the risk of bankruptcy Capital Structure Decision After observing the possible sources of capital for the projects, it can be observed that all options for financing bring some variation of risk or exposure for the company. Capital structure is about striking the balance between increasing debt, managing shareholder expectations and profits and the ownership structure of the company. This balance is very hard to achieve, and can be very subjective in nature from one company to another, based on internal policies and requirements and expectations of major shareholders. The theory of capital structure is initiated by (Modigliani and Miller, 1958), but their theory is based on perfect conditions, of borrowing under same conditions for everyone, no taxes and financing decisions independent of investment decisions. By extending the theory to include taxes and debt risk, the theory reaches a conclusion that optimal capital structure consists entirely of debt, with no equity. Starting from the roots of (Modigliani and Miller, 1958), several theories were developed. We will investigate the proposals of two theories  ¿Ãƒâ€šÃ‚ ½ Tra de-off theory and Pecking Order theory. The trade-off theory is based on the idea that a company will balance it ¿Ãƒâ€šÃ‚ ½s equity and debt based on the costs and benefits (Frank and Goyal, 2007; Kraus and Litzenberger, 1973) The theory concludes that there is an advantage of financing with debt (tax shield), but the benefits of debt (marginal benefits) decrease as debt increases, while the costs of debt will increase. The theory was met with heavy criticism (Myers, 1984). The pecking order theory proposes that companies will choose financing in a  ¿Ãƒâ€šÃ‚ ½pecking order ¿Ãƒâ€šÃ‚ ½ from most preferred to least. The order of preference gives priority to internal financing through retained profits, and only if it is insufficient external financing is chosen. When choosing external financing, debt is preferred to equity. The theories that are investigated give an overview of the theoretical best practices that managers can use, but also of the most co mmon mindset of managers when choosing a source of capital. Current research is focusing on the specifics of companies, and not on general criteria of the theory. For instance (Brigham and Houston, 2009) propose that companies with stable outlook to raise capital from debt, while companies who are at high risk of business failure to rely more on internal or equity funding. Also there is an observation that top management dislikes to issue debt because higher debt will mean more external oversight and less  ¿Ãƒâ€šÃ‚ ½elbow room ¿Ãƒâ€šÃ‚ ½ in their management style and decisions (Berger and Ofek, 1997). The Effect of Investment on Shareholders The expectations of a shareholder in a company are to increase his/her investment value in the form of stock value and direct profits in the form of dividend. To estimate the extra value of a company, multiple metrics have been applied historically, including ROA, ROE, EPS (Dumitru and Dumitru, 2008). In order to estimate the future dividend payout per share, we calculated the dividend value table in appendix F without and with the investment. In the scenario of no investment, the annual growth rate of dividends from the previous years averages out at 11% annual growth rate. Given that average trend, the value of the dividend in 5 years will reach 2.85 $. The investment will change the scenario, and will move the average growth trend to 15% annually, thus yielding a dividend of 3.59 $ within 5 years after the investment. To calculate the stock value, we will utilize the Gordon model, or dividend discount model (Gordon, 1959). Dividend discount model, risk = 4% Without investment With Investment Dividend Value $1.90 Dividend Value $2.05 Discount 13.70% Discount 17.70% Average dividend increase 11% Average dividend increase 15% Stock Value $70.37 Stock Value $75.93 In terms of value of shareholder equity, and given a risk premium of 4%, the value of the common Stock will be incr eased from 70.37 $ to 75.93 $. The following diagram presents the possible values of the shareholder equity depending on the risk premium. Economic Value Added (EVA) is considered as a stronger tool to estimate the market value of the company (Dumitru and Dumitru, 2008) (Salmi and Virtanen, 2001) (Petrescu, 2009). However, the available input for the case study did not include the necessary elements to calculate the EVA of the company, therefore we will maintain only the Gordon model calculated above. In general, shareholder equity will increase in value for all except the highest risk premium scenarios. Given these observations, from the point of view of shareholders we can support the proposal for investment at XYZ Company. Conclusion Through the investigation of the academic literature, we identified 4 capital budgeting methods which we used in the proposed project analysis. In order to provide for judgmental risk, we also included a second method for calculating the present value discount rate. With these tools, we performed an analysis of the proposed projects for XYZ company. The theoretically superior NPV methodology disagreed with the IRR, PP and PI results  ¿Ãƒâ€šÃ‚ ½ NPV proposed Project A as the more beneficial, while IRR, PI and PP proposed Project B. After adding judgmental risk to the discount rate, the NPV value of the Project B was also superior (even if applying the higher risk discount both to Project A and Project B). Based on the varying results of different methods, it is apparent that different risk aversion and information asymmetry can significantly change an outlook for a project, so management should strive for more information and multiple scenarios and checks. In terms of capital rationing, capital structure and financing options, Project B has the advantage of lower capital requirements, and multiple options of capital structure and financing were proposed based in the environmental and market conditions in which the company will operate. In terms of shareholder value, again multiple scenarios of risk aversion were investigated, but in all scenarios the project investment indicated an increase in value over the non-investment value of stock. This is true even if we added a judgmental risk to the risk profile, thus indicating a very risk-averse investor. Don’t waste time! Our writers will create an original "Structure Capital Budgeting Example For Free" essay for you Create order

Selected Quotations of Margaret Mead

Margaret Mead was an anthropologist known for her work on the relationship of culture and personality. Meads early work stressed the cultural basis of gender roles while later she wrote about the biological influence on male and female behaviors, too. She became a prominent lecturer and writer on family and child-rearing issues. Margaret Meads research—especially her work in Samoa—has come under more recent criticism for inaccuracies and naivete, but she remains a pioneer in the field of anthropology. These quotes demonstrate her work in this field and offer some observations and motivation. Selected Margaret Mead Quotations †¢ Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has. †¢ I must admit that I personally measure success in terms of the contributions an individual makes to her or his fellow human beings. †¢ I was brought up to believe that the only thing worth doing was to add to the sum of accurate information in the world. †¢ If one cannot state a matter clearly enough so that even an intelligent twelve-year-old can understand it, one should remain within the cloistered walls of the university and laboratory until one gets a better grasp of ones subject matter. †¢ It may be necessary temporarily to accept a lesser evil, but one must never label a necessary evil as good. †¢ Life in the twentieth century is like a parachute jump: you have to get it right the first time. †¢ What people say, what people do, and what they say they do are entirely different things. †¢ Even though the ship may go down, the journey goes on. †¢ I learned the value of hard work by working hard. †¢ Sooner or later Im going to die, but Im not going to retire. †¢ The way to do fieldwork is never to come up for air until it is all over. †¢ The ability to learn is older—as it is also more widespread—than is the ability to teach. †¢ We are now at a point where we must educate our children in what no one knew yesterday, and prepare our schools for what no one knows yet. †¢ I have spent most of my life studying the lives of other peoples—faraway peoples—so that Americans might better understand themselves. †¢ A city must be a place where groups of women and men are seeking and developing the highest things they know. †¢ Our humanity rests upon a series of learned behaviors, woven together into patterns that are infinitely fragile and never directly inherited. †¢ Mans most human characteristic is not his ability to learn, which he shares with many other species, but his ability to teach and store what others have developed and taught him. †¢ The negative cautions of science are never popular. If the experimentalist would not commit himself, the social philosopher, the preacher, and the pedagogue tried the harder to give a short-cut answer. †¢Ã‚  In 1976:  We women are doing pretty well. Were almost back to where we were in the twenties. †¢ I had no reason to doubt that brains were suitable for a woman. And as I had my fathers kind of mind—which was also his mothers—I learned that the mind is not sex-typed. †¢ Differences in sex as they are known today ... are based on the bringing up of the mother. She is always pushing the female towards similarity and the male towards differences. †¢ There is no evidence that suggests women are naturally better at caring for children ... with the fact of child-bearing out of the center of attention, there is even more reason for treating girls first as human beings, then as women. †¢ It has been a womans task throughout history to go on believing in life when there was almost no hope. †¢ Because of their age-long training in human relations—for that is what feminine intuition really is—women have a special contribution to make to any group enterprise. †¢ Every time we liberate a woman, we liberate a man. †¢ The male form of a female liberationist is a male liberationist—a man who realizes the unfairness of having to work all his life to support a wife and children so that someday his widow may live in comfort, a man who points out that commuting to a job he doesnt like is just as oppressive as his wifes imprisonment in a suburb, a man who rejects his exclusion, by society and most women, from participation in childbirth and the most engrossing, delightful care of young children— a man, in fact, who wants to relate himself to people and the world around him as a person. †¢ Women want mediocre men, and men are working to become as mediocre as possible. †¢ Mothers are a biological necessity; fathers are a social invention. †¢ Fathers are biological necessities, but social accidents. †¢ Mans role is uncertain, undefined, and perhaps unnecessary. †¢ I think extreme heterosexuality is a perversion. †¢ No matter how many communes anybody invents, the family always creeps back. †¢ One of the oldest human needs is having someone to wonder where you are when you dont come home at night. †¢ Nobody has ever before asked the nuclear family to live all by itself in a box the way we do. With no relatives, no support, weve put it in an impossible situation. †¢ We have got to face the fact that marriage is a terminable institution. †¢ Of all the peoples whom I have studied, from city dwellers to cliff dwellers, I always find that at least 50 percent would prefer to have at least one jungle between themselves and their mothers-in-law. †¢ Any woman can find a husband unless she is deaf, dumb or blind ... [S]he cannot always marry the ideal man of her choice. †¢ And when our baby stirs and struggles to be born it compels humility: what we began is now its own. †¢ The pains of childbirth were altogether different from the enveloping effects of other kinds of pain. These were pains one could follow with one’s mind. †¢ You just have to learn not to care about the dust mites under the beds. †¢ Instead of needing lots of children, we need high-quality children. †¢ The solution to adult problems tomorrow depends on large measure upon how our children grow up today. †¢ Thanks to television, for the first time the young are seeing history made before it is censored by their elders. †¢ As long as any adult thinks that he, like the parents and teachers of old, can become introspective, invoking his own youth to understand the youth before him, he is lost. †¢ If you associate enough with older people who do enjoy their lives, who are not stored away in any golden ghettos, you will gain a sense of continuity and of the possibility for a full life. †¢ Old age is like flying through a storm. Once youre aboard, theres nothing you can do. †¢ All of us who grew up before the war are immigrants in time, immigrants from an earlier world, living in an age essentially different from anything we knew before. The young are at home here. Their eyes have always seen satellites in the sky. They have never known a world in which war did not mean annihilation. †¢ If we are to achieve a richer culture, rich in contrasting values, we must recognize the whole gamut of human potentialities, and so weave a less arbitrary social fabric, one in which each diverse human gift will find a fitting place. †¢ Always remember that you are absolutely unique. Just like everyone else. †¢ We will be a better country when each religious group can trust its members to obey the dictates of their own religious faith without assistance from the legal structure of their country. †¢ The liberals have not softened their view of actuality to make themselves live closer to the dream, but instead sharpen their perceptions and fight to make the dream actuality or give up the battle in despair. †¢ The contempt for law and the contempt for the human consequences of lawbreaking go from the bottom to the top of American society. †¢ We are living beyond our means. As a people we have developed a life-style that is draining the earth of its priceless and irreplaceable resources without regard for the future of our children and people all around the world. †¢ We wont have a society if we destroy the environment. †¢ Having two bathrooms ruined the capacity to co-operate. †¢ Prayer does not use up artificial energy, doesnt burn up any fossil fuel, doesnt pollute. Neither does song, neither does love, neither does the dance. †¢ As the traveler who has once been from home is wiser than he who has never left his own doorstep, so a knowledge of one other culture should sharpen our ability to scrutinize more steadily, to appreciate more lovingly, our own. †¢ The study of human culture is a context within which every aspect of human life legitimately falls and necessitates no rift between work and play, professional and amateur activities. †¢ I have always done a womans job. †¢Ã‚  Her motto:  Be lazy, go crazy. Quotes About Margaret Mead †¢ To cherish the life of the world.  Source: Epitaph on her gravestone †¢ Courtesy, modesty, good manners, conformity to definite ethical standards are universal, but what constitutes courtesy, modesty, good manners, and definite ethical standards is not universal. It is instructive to know that standards differ in the most unexpected ways.  Source: Franz Boaz, Meads academic advisor, wrote this of her book Coming of Age in Samoa