Expert answer:Capital budgeting assignment help

Answer & Explanation:CAPITAL BUDGETING
1.a  Information
needed to analyze the feasibility of acquiring a supplier purchase.

Fully understand the spend category of the supplier
The staff needs to ensure it understands everything about
the supplier that is their spend category. If for example the category is
corrugated packaging at a consumer products company, the staff will need to
understand the definition of the category, their usage patterns and why the
particular types and grades were specified.
The staffs need to identify all the stakeholders at all the
operating units and physical locations. For example logistics, which may need
to know about shipping specifications, or marketing, which may need to
understand certain quality or the environmental characteristics.
The total historic expenditure and volumes; expenditure
categorized by commodity; expenditure by division, department; expenditure by
the supplier; future demand budgets should be analyzed by the staffs so as to
have a good view and clarification of the supplier.
The supplier market assessment
Concurrently the staffs should run the supplier market
assessment for seeking alternative suppliers to existing incumbents.
Understand the key supplier marketplace dynamics and current
trends.
The staffs should prepare “should cost” information
from the major components of the key product. To have a view on the key
suppliers sub tier marketplace, and analyze for any risks as well as
opportunities. Should-cost analysis provides a valuable tool that can drive
cost reductions and supplier continuous improvement efforts.
To prepare a supplier survey.
The staff prepares this for both incumbent and potential
alternative suppliers so as to evaluate the supplier capabilities, to access
the capability and capacity of the market to meet their requirements. Hence
this enables assessment at an early stage whether the proposed project is
feasible, provides an early warning of requirements to the market and enables
the supplier on how to respond. Thus the right suppliers are encouraged with
the right structure to respond to EEC.
Building of strategy
The staff to evaluate on how competitive the supplier
marketplace is. Staffs with the supplier information can build a competitive
landscape in the supply marketplace hence helping demonstrate “the
size of prize” to alternative suppliers and communicate the seriousness of
the potential sourcing exercise to incumbent suppliers.
On how supportive the
organization is testing incumbent supplier relationships. The sourcing team
involves the people who use the things bought, and the executives who manage
the overall cost. The consumers will accept cost reductions as long as the
process is: started in another department; doesn’t mean change in suppliers; and doesn’t
jeopardize a good relationship with the supply base.
The executives are the pursuit of cost improvement and user
mentality of resting change. To mobilize users and executives support for the
category sourcing strategy, all the benefits and overcome any potential risks.
What alternatives exist to competitive assessment? The
staffs can harness those forces to leverage better pricing hence useful to set
up a collaborative programme that will run until the next competitive sourcing
event takes place and if the competitive approach isn’t viable hence
the staffs should consider alternatives such as collaborating with suppliers so
as to: reduce complexity and increase productivity, create corroborative
process improvements, change the structure of the relationship such as new
technology or process improvements.
Prepare RFx Request for proposal
The staffs should define and make clear the requirements to
all the prequalified suppliers and implement a communication plan to attract
maximum supplier interest, ensuring that that the supplier is aware of
competing field. Once the RFP is sent to supplier they are given enough time to
respond
Selection. This is the staff selection and negotiating with
the suppliers, evaluation criteria to the supplier response. If any additional
information is required they can enquire, negotiation is conducted first with a
larger of suppliers then narrowed to finalists. Staffs should compare outcomes in
terms of total value; departments affected can be brought to the final
selection process by briefing the senior executives so as to gain approval and
given a rationale behind the decision.
Communication with the new supplier. The staffs should
invite the supplier to participate in the implementation recommendations. Communication
plan is to be developed an important to measure the supplier performance in the
first weeks.
2.a DECISION MAKING PROCESS IN CAPITAL BUDGETING
DECISIONS.
Brainstorming. Investment ideas can come from anywhere that’s
from topor bottom of organization from any department financial area or the a
whole company
Project analysis. Gathering information to forecast cash
flows for each project then evaluating project profitably.
Planning. Company must organize profitable proposals into a
coordinated whole that fits within the company’s strategies and projects timing
Performance monitoring. In a post-audit, actual results are
compared to plant or predicted results and any difference must be explained
.post auditing capital helps in monitoring the focus and the underlay capital
budgeting process.
2.b Techniques used in capital budgeting decisions
Payback period. It is very intuitive and easy to calculate,
the amount of time until the initial investment is removed i.e. a project cost
a 100 dollars and we own 20 dollars(after tax) a year we will have our 100
dollars in 5 years.
Net present value. This calculation of time value money and also
used to value stocks and bonds. Discounting of all the cash flows for an
investment to the present, adding inflows and subtracting outflows. The larger
the NPV the more the financial value the project adds to the company. It gives
the project amount of value that a project will add to the EEC. I.e. if the NPV
is less than zero reject the project.
Internal rate of return. It is the return we will receive on
the life of our investment, calculated at a discount rate I which the NPV is
equal to zero. The rate that makes the present value of cash flows is equal to
initial investment. If the rate we earn is more than the rate it cost us then
we should undertake the project as it adds to corporate value if less than what
it cost us then the project subtracts from the project value. If IRR is greater
than the cost of capital one should undertake the project.
If IRR is greater than the cost f capital (IRR>WACC)
accept, if IRR is less than the cost of capital (IRR

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