You are a Finance Manager for a major utility company.
Respond to the following in a minimum of 175 words:
- Think about some of the capital budgeting techniques you might use for some upcoming projects.
- Discuss at least 2 capital budgeting techniques and how your company can benefit from the use of these tools.
- Compare your approaches to other students’ responses. How were they similar or different? Why might you use the different approaches shared by your classmates?
RESPOND TO MAGGIE AND BRITTNEY
The payback method is away in a proposal that will generate cash to recover the initial investment made. (Thakur, n.d). It helps focus on the cash flow and the investment in the project. This is a great one to use because it is so straightforward. It is the initial investment divided by the net annual cash inflow. It also helps you identify the payback period as well. As a company, I think it is good to know when you take money out or borrow against your bussiness. It is great to see when you will be officially paid off with that. It also helps reduce the risk of losses. Again as a company, you don’t want any casualties. Another excellent method I would use is the net present value method. With this, it is most commonly used, it cash inflow that is expected at different times at different rates. To figure this out, you need the present value of benefits minus the current value of cost. The advantage of using this method is to get an idea of what future cash may look like. It also helps to tell the company if this investment will make their money. And it also sees what the future will look like for them. As a company, why wouldn’t you want to know those things?
The capital budget techniques I would consider for upcoming projects would be net present value (NPV) and profitability index. Like anything else they will have their pros and cons, but each tool can be useful for its budgeting purposes. When using the net present value it is important that the project will be a positive value when calculating the NPV or the shareholders will pass. The project needs to make more than was spent in order for it to be worth the risk. When calculating the NPV it is important to keep in mind that there is no guarantee that the rate calculated will be what is gained, it is a forecast of what is expected to be gained. There is a financial principle that is in the book that states, “A risky dollar is worth less than a safe one.”(Brealey, Myers, & Marcus, 2020) The profitability index is calculated by dividing the net present value by the initial investment, which tells us what the NPV is per each dollar that was invested. This formula would also indicate that the value of the project must be positive in order to consider the project. The profitability index that gives the most bang for the buck should be selected when deciding between projects.
Respond to the following in a minimum of 175 words:
- Consider your job pay rate or a job you are familiar with.
How might the pay rate for your job be influenced if it was a similar job in another industry or another geographic area? For example, how might your pay be different if you were employed by a small, rural grocer as compared to a large, auditing firm in a major metropolitan area or medium-sized manufacturer in a suburb? What could you do to ensure external equity in your work?
RESPOND TO ASHLEY AND SABRINA POST BELOW
My job pay rate is higher than other people in my field. I am salaried not hourly. The federal minimum wage stands at $7. 25, but most states have minimum wage laws with surprisingly Massachusetts at the highest with $14.25 closer to the $15.00 federal worker minimum wage that took effect on January 30, 2022.
Hawai’i where I reside is $10.10 an hour. How my salary was determined was by years of service as how valuable I made myself within the organization that I work for. The average salary for someone in my department is $92k. I make three times that.
My job requires me to make tough decisions and communicate those decisions made by leadership. The movie Up in the Air is the best way I can describe my job. The organization tried to have someone else do my job and remove me from my position. It did not work out. The reason is that my job requires someone who can put emotions aside. Regarding external equity, I have positioned myself to make my position hard to replace. I did not set out to do so, but the organization did, and I was able to adapt.
My organization assumed that if I hired my replacement, I would somehow “slip up” and therefore give them a reason to let me go. I am an “at-will” employee, so they can let me go at any time. The organization had to hire three more people with different titles to replace the one person I replaced with my job responsibilities. I made myself valuable to the organization and some saw that as a threat. When we parted ways after a week, they asked me back. This allowed me to negotiate a much higher salary and benefits package. This also gave me the chance to negotiate a few more benefit changes for the rest of the organization that I had been trying to convince the board to accept.
Location is a primary factor used in benchmarking pay rates and developing salary ranges for most nonexecutive jobs. I know for a fact the job I have now, if I had this exact position in New York City (where I am from) I would be making at least 40% more than I do now, hourly. I now live in a smaller rural and farmland area. Yes, the cost of living is lower here. As it skyrockets, wages stay the same. I’d like to start with Pennsylvania’s minimum wage is still 7.25, as is the federal. Absolutely not a livable wage. The average salary for an office worker in NYC is $21 and PA is $14. Some companies use cost of living (cost of goods and services) as a factor to determine geographic pay differentials. However, most companies use cost of labor (compensation) as the primary factor to determine pay differences among locations. It was interesting to learn how they determine the pay. More than 86 percent of companies with geographic pay differentials use salary surveys.