Long-Term Investment and Cost-Benefit Analysis
From the scenario for Katrina’s Candies, suggest one (1) method in which Herb could use a cost-benefit analysis to argue for or against an expansion. Create three (3) optimal decision rules for Katrina’s Candies (e.g., whether to hire more staff or hire temporary workers to meet production schedules). Assess both the short-term and the long-term costs and benefits of obtaining a graduate degree. Support your decision to obtain a graduate degree with a cost-benefit analysis of your particular situation.
The cost-benefit analysis Herb could use in his argument for or against the decision to expand Katrina’s Candies global presence through a merger with or through capital investment is the Net Present Value (NPV) method. Net Present Value
Net Present Value (NPV) is the present value of net cash inflows generated by a project including salvage value, if any, less the initial investment on the project. It is one of the most reliable measures used in capital budgeting because it accounts for time value of money by using discounted cash inflows.
The Net Present Value relies on the concept of opportunity cost to place a value on cash inflows arising from capital investment. Opportunity cost is the calculation of what is scarified or foregone as a result of a particular decision. It is also referred to as the “real” cost of taking some action. It relies on the concept of opportunity cost to place a value on cash inflows arising from capital investment. Present value is the cash equivalent now of a sum receivable at a later date. If we didn’t spend that money and banked it instead, the opportunity cost includes both the initial sum and the interest earned.
The Net Present Value method is a technique where cash inflows expected in future years are discounted back to their present value. This is calculated by using a discount rate equivalent to the interest that would have been received on the sums, had the inflows been saved. A positive NPV means that the project is worthwhile because the cost of tying up capital is compensated for by the cash inflows that result.
The advantage of the Net Present Value method accounts for time value of money. Thus, it is more reliable than other investment appraisal techniques, which do not discount future cash flows such as payback period…
From the scenario for Katrina’s Candies, suggest one (1) method in which Herb could use a cost-benefit analysis to argue for or against an expansion.
The cost-benefit analysis Herb could use in his argument for or against the decision to expand Katrina’s Candies global presence through a merger with or through capital investment is the Net Present Value (NPV) method. Most of us know that the money we presently have is more valuable than money we will collect later on. The money we collect later on is less valuable because inflation erodes its buying power. But, we can use the money we presently have to make more money by opening and operating a business or by purchasing something now and selling it later for more. We may even opt to deposit the money in the bank so it can earn interest. Net present value is the way we can compare the value of money now with the value of money in the future. With the Net Present Value method, Katrina’s Candies can calculate their return on investment (ROI). By looking at all the money the company can make from their investment and translating it into today’s dollars, they can decide which decision is worthwhile – the merger or the capital investment. One reason the NPV would be the best cost-benefit analysis is its consideration for time value of money, translating future cash flows into today’s dollars. Plus, it provides a concrete number that makes it easy for Katrina’s Candies managers can use to easily compare an initial outlay of cash against the present value of the return (Gallo, 2014).
Create three (3) optimal decision rules for Katrina’s Candies (e.g., whether to hire more staff or hire temporary workers to meet production schedules).
An optimal decision is a decision that leads to a better outcome than all the other decision options. Three optimal decision rules I would create for Katrina’s Candies are:
subcontracting or outsourcing – both are feasible alternatives if Katrina’s Candies can reliability meet quality and time requirements. They are great solutions when demand exceeds expectations for the final product.
cross-training – these employees will be able to perform tasks in several operations, creating a level of flexibility when scheduling capacity, and
utilization of part-time workers – are less costly and more flexible than full-time employees. Katrina’s Candies will not have to provide health care or retirement benefits and they are more flexible because their hours usually vary considerably.
Assess both the short-term and the long-term costs and benefits of obtaining a graduate degree.
Though may have achieved professional success without a college degree, and many without the benefit of a high school diploma, it is becoming clear that earning an education matters. A graduate degree is a smart fiscal and career move.
Long-term costs – greater employment opportunities. Several years ago, many could secure an entry-level positon with just a bachelor’s degree; but, in more recent years, applicants for those same entry-level positons were not even considered without a graduate degree. A graduate degree does not guarantee ultimate success, but it does open more doors for employment. The return on investment (ROI) is a good consideration when students decide to pursue a graduate degree. Employees with a graduate degree or higher can earn an average annual salary of $55,000 versus someone with only a bachelor’s degree whose average annual salary is $43,000. A graduate degree can make a positive impact on one’s financial situation.
Short-term costs – A mere sense of accomplishment, the feeling one has from receiving a graduate degree. Despite of moments of doubt and uncertainty, just knowing the effort you put forth to earn the degree bring with it a sense of accomplishment.
Support your decision to obtain a graduate degree with a cost-benefit analysis of your particular situation.
My decision to pursue a second graduate degree was spurned by my desire to add to my knowledge reservoir. I pride myself in being a lifelong learner and challenging myself academically brings me a great sense of pride and thankfulness to God. At the age of 64, these classes have really helped develop my mind. They keep me sharp. Plus, I get to use what I learn on my job every day. It shows my employer that I am dedicated to my chosen career field.
Gallo, A. (2014). A refresher on net present value. Retrieved from https://hbr.org/2014/11/a-refresher-on-net-present-value
Prentice-hall. (n.d.) Strategies for meeting demands. Retrieved from http://www.prenhall.com/divisions/bp/app/russellcd/PROTECT/CHAPTERS/CHAP11/HEAD03.HTM