Monday, February 24, 2020
There are two essays in the information part - Coursework Example In management practices culture, communication and team work often form the cog of management, and the correct and positive interpretation and illustration of these translate into effective management. One could state factually that management is a vital human activity, and the fact that people through groups has pushed the increasing need for management. The major focus of this paper is to provide a critical discussion of the assumptions in management theories and models, and their implications in management practice. There are a number of reports showing certain managers who have achieved success in management without being privy to theoretical management knowledge, while on the other hand there are who have been to the highest class in management and even proposed theories in management, yet success in management practice eludes them. This is the paradox of the management theory and practice, underpinned by assumptions. In order to build a discussion on the thesis mentioned above the paper will proceed with an exploration of the assumptions that underpins management practice, but first it is important to understand the meaning of management, in a bid to build clarity in understanding. Management is described as both an art and a science that is used in achieving goals through people, and it is a function that makes sure that people perform roles that have been assigned to them. Hence, managers must ensure productivity and continuous improvement in production or service delivery (Brocklehurst, Grey and Sturdy, 2010). Considered on a wider scale management could be aptly defined as the process of developing and sustaining the environment where people, work in groups, effectively surmount provided aims. In this considered definition, management could draw a variety of meanings. First, managers are individuals who carry on managerial roles of planning, organising, staffing, leading and controlling an
Saturday, February 8, 2020
Term part III - Statistics Project Example Similarly, businesses will come to a standstill if the crime rate is high in the city. This study will therefore inform the police department and other relevant bodies involved in combating crime on the measures that are needed to be undertaken in order to mitigate crime rate in the cities. Since the study seeks to relationship between city crime rate and the number of uniformed forces in those cities or any other variable, the city dwellers will form a desired representative sample population for the study. This means that the city dwellers will form the target population for this particular study. So as to obtain a representative sample, the population will comprise all the adults over 18 years old regardless of gender, race or place origin of the respondents. Since it is not possible to interview all the city dwellers, a random sample of 400 participants will be selected. A systematic random sampling will be used to select the participants into the study. That is, the study will identify 8 cities of interest from which 50 respondents will be drawn. The data set will be obtained from the FBI and local city websites. Questionnaire will be the main tool to be used in collecting the views of the people. The variables of interest in this case will be crime rate (dependent variable) and explanatory variables (number of uniformed forces, mean income per year, education level and population size). Each data set for every variable was sourced from websites of local city and FBI. The data set for education level variable was obtained from this website: www.census.gov/ Descriptive statistics, particularly histogram, was used to analyse each variable. The histograms presented below, by visualization, show that all the data set followed a normal distribution (the data set is normal). From the all the histograms below, most of the observations were around the mean at least for each variable. This concentration of
Wednesday, January 29, 2020
Of Mice and Men Importance of Dreams Essay Dreams are an ingrained part of our lives, and those who strive to achieve them show extraordinary devotion and resolve. The allure of a brighter future, of a better life, can both benefit and harm, as John Steinbecks Of Mice and Men illustrates. Living in a time of pain and loss, the characters in the novella cling to their dreams. However, these dreams are beyond attainment, of no importance for accomplishment, and bring them nothing but regret. This essay will demonstrate how hopes and dreams are unimportant for success and happiness, as they are unachievable and bring only pain. Firstly, the pursuit of dreams is futile, as they cannot be achieved. The dream that the two protagonists, George and Lennie, harbour recurs throughout the novel. Their dream is to one day own their own property and to become self-sufficient, and the realization of this dream becomes more likely as the novel nears its climax. However, the dream shatters with the death of Lennie, devastating George, as George cannot envisage the dream without Lennie. The dreams of the other characters, such as Candy and Crooks, are also shown to be beyond realization. Candy, knowing that he is soon to outlive his usefulness, hopes that he can come and live with George and Lennie and to have the freedom to work or rest as he pleases. However, this also is broken when Lennie dies. The black stable-hand Crooks is the only character that clearly understands the futility of dreams. I seen hundreds of men come by on the road an on the ranches. . . every damn one of ems got a little piece of land in his head. An never a God damn one of em ever gets it. Just like heaven Nobody never gets to heaven, and nobody gets no land.(Crooks, Chapter 4) Crooks dreams of being equal to the other workers, but he understands that he is not considered equal. He briefly joins the dream that George and Lennie have, but withdraws his offer to help on the farm when he accepts that dreams are not possible: the freedom and happiness that they wish for is not found in the world they live in. The impossibility of achieving dreams makes them unimportant; they remain unfulfilled, leaving the holder with nothing. Secondly, when unfulfilled, dreams cause regret and misery. The unfulfilled dream of Curleys wifes has left her discontent, and she lives a lonely life with her inattentive husband. Her dream was to escape from her oppressive mother and become an actor. A show come through, an I met one of the actors. He says I could go with the show. But my ol lady wouldn let meIf Id went, I wouldnt be livin like this, you bet.' (Curleys wife, Chapter 5) Because of her mother, Curleys wife was never able to achieve her dream, just like the other characters, leaving her only with the knowledge that she could have had a better life. Her attitude and manner around the ranch evidences this. Her bitterness and attempts to draw attention from the other men, simply so she can have some companionship, are clear indicators of her dissatisfaction and loneliness. Curleys wife is an example of dreams leaving the holder with regret when unfulfilled, and of how they are not important for success. Lastly, without dreams, people can still be successful and satisfied. The ranchs skinner, Slim, is described as a highly skilled and content man, and as the prince of the ranch. He moved with a majesty only achieved by royalty and master craftsmen his authority was so great that his word was taken on any subject, be it politics or love. (Chapter 2, Of Mice and Men) However, while the other characters have dreams, Slim appears to have none. He never mentions any of his own, but rather supports others with theirs. It is demonstrated that he does not want anything outside of what he has, and that he has not created any plans. Whether it is because he, like Crooks, understands the futility of dreams, or because he is simply satisfied with his place in life, Slim does not possess them, and despite of this, he has the highest status among the workers. He stands as the primary example of how dreams are not required for somebody to be successful. In conclusion, it can be seen that dreams are not important. Not only do dreams leave those who keep them with unhappiness, such as with Curleys wife, but they also cannot be achieved due to the cruel nature of fate, leaving them unfulfilled. These dreams, whether they are fulfilled or not, are shown to be unnecessary for contentment, as evidenced by Slim, the most successful worker. Ultimately, the nature of dreams is best illustrated by the poem from which the novel draws its name. The best laid schemes o mice an men Gang aft agley, An leae us nought but grief an pain For promisd joy. (Robert Burns, To a Mouse) As it has been shown, dreams are not important; they are beyond reach, offer nothing, and bring only unhappiness to those who keep them, whether they are accomplished or not.
Tuesday, January 21, 2020
Substance Abuse in the Workplace Substance abuse in the workplace is one of the top concerns in the United States today. Ã¢â¬Å"Studies show that 73 percent of drug users are employed, costing American businesses billions of dollars annually in lost production and staffing costs (Walsh).Ã¢â¬ Ã¢â¬Å"Due to higher employment rates and rising substance abuse, the chances that your organization employs one of these 8.1 million workers is greater today than it has been in the past several years (Walsh).Ã¢â¬ Studies also reveal that employees who abuse drugs have a tremendously harmful effect on the workplace. They are more likely to have extended absences from work, show up late, be involved in workplace accidents, and file workers compensation claims. Substance abuse includes anything from drug use, such as cocaine and heroin, to alcohol abuse. Before I start to discuss the various ways to get control of substance abuse I would like to give you a small background of the impact of substance abuse on the world today. The department of labor has gathered some of the following information and statistics to show the world how it is being affected: Ã¢â¬ ¢Substance abuse in the workplace costs are estimated at $100 billion dollars annually. Ã¢â¬ ¢Alcoholism causes 500 million lost work days each year. Ã¢â¬ ¢Drug-using employees at GM average 40 days of sick leave each year compared to 4.5 days for non-users. Ã¢â¬ ¢In Ohio substance abuse treatment has shown significant improvements: - 91% decrease in absenteeism. - 88% decrease in problems with supervisors. - 93% decrease in mistakes in work. - 97% decrease in on-the-job injuries. Page 2 As you can see substance abuse is a very ser... ... the warning signs and implement a policy to attack the problem. Most likely it is going on right under your nose and you do not even know it. Take the time to step back and help your employees, the people that really make a difference to your company. You never know it might save you money. Bibliography: Works Cited Campbell, Reginald L. Substance Abuse in the Workplace. New York: Mcgraw Hill, 1990. Harris, Michael. Human Resource Managment: A practical Approach. New York: Dryden Press, 1997. Largent, Richard J. Preventing Substance Abuse in the Workplace. Boston: Houghton Mifflin Company, 1996. Loomis, Loyd. Drug Testing: A Workplace Guide to Designing Practical Policies. Chicago: BNA Plus, 1990. Walsh, Michael J. Drug and Alcohol Abuse in the Workplace. New York: Target Investment Inc., 1996.
Monday, January 13, 2020
The Global Car Industry Facing Recession and a Credit Crisis Case study Reference no 309-032-1 This case was written by Nick S Potter, Birmingham Business School, University of Birmingham. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources. Ã © 2009, Birmingham Business School, University of Birmingham. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner. cch the case for learning Distributed by ecch, UK and USA www. ecch. com All rights reserved Printed in UK and USA North America t +1 781 239 5884 f +1 781 239 5885 e [emailÃ protected] com Rest of the world t +44 (0)1234 750903 f +44 (0)1234 751125 e [emailÃ protected] com 309-032-1 ___________________________________________________ The Global Car Industry: Facing R ecession and a Credit Crisis N. S. Potter Ã¢â¬Å"The change that has hit the world economy is of a critical scale that comes once in a hundred yearsÃ¢â¬ said Katsuaki Watanabe, announcing ToyotaÃ¢â¬â¢s first annual loss in its 71 year history.The firm said it expected a loss of 150 billion Yen (? 1. 1 billion) in yearly operating profits and confirmed that vehicle sales in the U. S. had fallen 37% in December 2008 and that production would halt for a total of 14 days from January to March 2009 in an effort to reduce inventories. Meanwhile, in America, outgoing President George W. Bush threw the struggling car makers a $17. 4 billion lifeline to stave off immediate bankruptcy and Canada became the second G8 economy to bail out its car industry. In the UK, Tata approached the government for up to ? billion to help save Jaguar and Land Rover and announced at the same time that it was sponsoring the Ferrari F1 team in 2009. The Global Car Industry in 2009 Ã¢â¬â An Overview. Car manufacturing has been described as Ã¢â¬Å"the industry of all industriesÃ¢â¬ . Strong inter dependence therefore exists between the economies of many countries and industry performance. Governments rely on the sector as well as related suppliers and services to a greater or lesser extent in terms of employment, taxation, GDP and balance of payments. Car makers equally, require growing economies with rising levels of disposable income and consumer confidence.The events of 2008 also demonstrated the industryÃ¢â¬â¢s reliance on freely available credit to finance the purchase of its products. Ã¢â¬Å"Credit availability has been the biggest issue in our industry this yearÃ¢â¬ , according to Mike Jackson, Chief Executive of Auto Nation, the largest car dealer in America. This case was prepared by N. S. Potter of Birmingham Business School and is intended as a basis for classroom discussion rather than to illustrate correct or incorrect handling of any administrative situations Ã¢â ¬â N. S. Potter, 2009. 2 309-032-1The credit crisis has affected economies globally and reduced activity in a wide range of industries, notably housing and the fall in property values, coupled with the fear of unemployment has reduced consumer confidence around the world. Many analysts now think that car sales will not recover until 2010 and may take until 2013 to return to 2007 levels of 16. 1 million vehicles, (CSM Worldwide, Detroit). Governments must balance these economic considerations with environmental issues, as well as the aspirations of consumers in terms of mobility and materialism.Politicians need to find a compromise between these opposing forces and the ways in which they impact on the voting intentions of different groups in their respective electorates. The effects of oil price volatility, the credit crisis and subsequent recession on the environment appear to be mixed. Some environmentalists are concerned that economic issues will dominate the political agenda, w hile others point out that people are flying and driving less and that the car industry in particular, will be forced to spend heavily on developing more eco friendly products.Core industries base strategic decisions on the car industry as seen in the move by steel makers to site manufacturing facilities in developing countries where car making is starting to take place and demand for commodities was rising rapidly until mid 2008. The car industry may experience only low growth going into the second decade of the 21st century. However, this will be spread unevenly, both between countries and individual companies. One of the key elements driving dynamics in the car industry is ever increasing globalisation.Rapid change is taking place, continually altering industry structure and attractiveness as well as the key success factors necessary for both survival and growth. Japanese companies were forced to manufacture overseas for much of the 1990s due to the continuous appreciation of the Yen and with its currency at a thirteen year high against the dollar in early 2009, Japan has seen exports to America fall by 33. 8% and to the E. U by 30. 8%, (BBC News). 40% of all cars sold by Toyota in the U. S. re currently manufactured in Japan. China and India, with combined populations of two billion, clearly have enormous potential, but appear to be equally vulnerable to world events. Chinese car sales fell by 14. 8% in the year to November 2008, (FT) and sales in India fell by 19. 4%, (Society of Indian Automobile Manufacturers) due to credit problems and high interest rates, beginning to call into question some existing joint ventures as foreign partners scale back investment and concentrate on problems in their own markets. 309-032-1 South America as a whole is set to become a significant market with Brazil now the 6th largest producer in the world, however annual sales fell 16. 9% in the year to December 2008, (Reuters). A new manufacturing facility planned by Honda in Argentina has now been postponed until at least 2010, (Associated Press). Europe has also seen sales plummet during 2008 but has still overtaken the USA to become the largest volume market in the world and East Asian competition has become ever more significant.Tightly defined product segmentation has taken place as traditional markets mature, while the rapid growth of emerging economies has provided opportunities to extend product life cycles on a geographical basis. The pace of globalisation has varied considerably within the triad. Most European car manufacturers have significant positions only within Europe. U. S. companies tend to have major shares domestically and in Europe, while only two major Japanese companies can claim to be truly global.Although the industry is concentrating, no single company is close to dominating the market and in fact seven companies have between 10% and 15% market share. The level of acquisition activity has been reasonably intense but the other ma jor feature of the industry has been the degree of collaborative activity. A variety of alliances and joint ventures have been utilised as a means of growth, as isolating mechanisms and even to circumvent national political issues. In 1980, there were 30 independent car anufacturers, by 2000 this had fallen to 13 and it is predicted that by 2015 the number will have fallen to 10, a situation which could be exacerbated by the global economic situation. The industry value chain is also altering and becoming capability led, as companies focus downstream towards the customer interface where the most explicit value is increasingly being added. The Original Equipment ManufacturerÃ¢â¬â¢s (OEMÃ¢â¬â¢s) share of total value creation stood at 36% in 2002 and this will fall to 23% by 2015.Despite this, the component manufacturers face similar consolidation pressures with 8000 suppliers in 1998 expected to fall to 2800 by 2015. Technology is changing the upstream supply chain as component su ppliers split into tiers and become total solution providers, often diversifying from previously unrelated industries such as electronics, computer software and aerospace. Companies such as Delphi, Bosch, Continental, Lear, Siemens, Thyssen Krupp and Visteon will become dominant. 4 309-032-1 Summary of main conclusions Ã¢â¬ ¢Demand will fall in Europe and America in 2009 and will be flat in China, although the second half of the year may see a partial recovery. Supply will continue to exceed demand as production capacity currently stands at 90 million units. Ã¢â¬ ¢ Europe and China have become the primary battlegrounds for car manufacturers, with Germany currently the biggest single market. Ã¢â¬ ¢ Eastern Europe and South America offer limited growth as well as high risk but will become significant markets by 2015 Ã¢â¬ ¢ Apart from China and India, the ASEAN countries represent the greatest opportunity and challenge to Japanese, U.S and European manufacturers, as long as structu ral and governance reforms continue. Ã¢â¬ ¢ Significant demand fluctuations will exist between country markets. Ã¢â¬ ¢ Toyota, Honda and Nissan are truly global competitors and this trend will continue, with around seven companies or collaborative groupings eventually dominating the world market, each making between 5-7 million vehicles annually. Ã¢â¬ ¢ The industry is driven by cost and technology with political and ecological issues as a significant underlying factor and this holds for product and process development. Ã¢â¬ ¢Manufacturers will integrate forward vertically into their distribution channels, diversify and out source traditional activities. Ã¢â¬ ¢ Collaboration between manufacturers, suppliers governments will become increasingly prevalent. Ã¢â¬ ¢ Marketing strategies will focus on creating lifetime customer relationships, but in the short term, availability of finance will be a critical issue. 5 and even national 309-032-1 Ã¢â¬ ¢ Time to market for new models w ill continue to reduce from 3. 4 years in 1995 to 2. 2 years currently and this may become a critical issue as companies respond to rapid changes in consumer preferences.Global Car Industry Ã¢â¬â Major Forces and Impacts It is clearly difficult to generalise due to the enormous variation between countries in the various stages of their development. It is however reasonable to conclude, that the car industry within any given country is subject to opposing political forces. Ã¢â¬ ¢ As a primary industry, it is a major contributor to GNP, balance of payments and employment. Component suppliers and service providers represent important secondary industries. Total global industry employment was predicted to reach 11. million by 2015, prior to the 2008 crash, with 78% of those jobs generated by suppliers. This will heavily influence government policy during 2009/10 with governments across the world expected to support the car industry. Ã¢â¬ ¢ Taxation of purchase and use represents si gnificant government revenue. It is estimated that global industry revenue will have reached 903 billion Euros by 2015. Ã¢â¬ ¢ Transport is a major part of any countries infrastructure and is necessary to the process of wealth creation. Ã¢â¬ ¢ Congestion and safety are becoming increasingly important issues. Ã¢â¬ ¢Pollution and sustainable energy policies could dominate the industry in future. Targets to reduce CO2 emissions and fuel consumption are making alternative fuels, such as natural gas and electricity more attractive. Ã¢â¬ ¢ The issues surrounding inward and outward direct investment affect strategies adopted by companies as they seek to invest and grow in new markets. Cost of labour as a factor of mobility is increasingly debated but governmentÃ¢â¬â¢s attempt to attract investment with a range of grant aid as well as subsidising domestic companies for a variety of reasons, including national prestige. 6 309-032-1Demand for cars is very closely linked to a given count ry's economic performance and this can be viewed in two separate contexts :1 Ã¢â¬â The wider process of the economic development of a country which results first in selective ownership, leading gradually to mass market volumes. 2 Ã¢â¬â Short term life cycle fluctuations within mass volume markets leading to delayed purchases or customers changing segments. Consumer confidence is a key factor in the purchase decision as the product price is significant in relation to most people's income. For every 1% increase in average earnings, car ownership rises by 2%. 7 309-032-1Table 1 Ã¢â¬â World Economic Outlook 2009 Ã¢â¬â IMF 2006 2007 2008 2009 Original World output 5. 1 5. 0 3. 7 2. 2 Advanced economies 3. 0 2. 6 1. 4 United States 2. 8 2. 0 Euro area 2. 8 Germany 2008 2009 2007 2008 2009 Revised Current forecast -0. 2 -0. 8 4. 8 2. 5 2. 4 -0. 3 -0. 1 -0. 8 2. 6 0. 3 0. 3 1. 4 -0. 7 -0. 1 -0. 8 2. 3 0. 4 -0. 5 2. 6 1. 2 -0. 5 -0. 1 -0. 7 2. 1 0. 1 Ã¢â¬â 3. 0 2. 5 1. 7 -0. 8 -0. 2 -0. 8 1. 7 0. 3 -0. 3 France 2. 2 2. 2 0. 8 -0. 5 -0. 1 -0. 6 2. 2 -0. 4 0. 2 Italy 1. 8 1. 5 -0. 2 -0. 6 -0. 1 -0. 4 0. 1 -0. 4 -0. 1 Spain 3. 9 3. 7 1. 4 -0. 7 Ã¢â¬â -0. 5 3. 2 0. 2 -0. 6 Japan 2. 4 2. 1 0. 5 -0. 2 -0. 2 -0. 7 1. 4 -0. 3 0. 4United Kingdom 2. 8 3. 0 0. 8 -1. 3 -0. 2 -1. 2 2. 9 -0. 9 -0. 5 Canada 3. 1 2. 7 0. 6 0. 3 -0. 1 -0. 9 2. 8 Ã¢â¬â 1. 0 Other advanced economies 4. 5 4. 7 2. 9 1. 5 -0. 2 -1. 0 5. 0 1. 8 3. 0 5. 6 5. 6 3. 9 2. 1 -0. 1 -1. 1 6. 1 2. 2 4. 4 -0. 1 -0. 8 9. 0 8. 3 Newly industrialized Asian economies China 11. 6 11. 9 9. 7 8. 5 11. 3 7. 9 8. 0 6. 6 5. 1 -0. 3 -1. 0 8. 5 5. 9 5. 7 Africa 6. 1 6. 1 5. 2 4. 7 -0. 7 -1. 3 Ã¢â¬ ¦ Ã¢â¬ ¦ Ã¢â¬ ¦ Brazil 3. 8 5. 4 5. 2 3. 0 Ã¢â¬â -0. 5 6. 2 3. 9 3. 2 Central and eastern Europe 6. 7 5. 7 4. 2 2. 5 -0. 3 -0. 9 Ã¢â¬ ¦ Ã¢â¬ ¦ Ã¢â¬ ¦ Commonwealth of Independent States 8. 2 8. 6 6. 9 3. 2 -0. 3 -2. 5 Ã¢â¬ ¦ Ã¢â¬ ¦ Ã¢â¬ ¦ 7. 4 8. 1 6. 8 3. 5 0. 2 -2. 0 9. 5 5. 9 5. 8 9. 8 9. 3 7. 8 6. 3 8 . 9 6. 6 6. 0 Emerging and developing economies2 Russia India 8 0. 1 0. 6 309-032-1 The important variable is private consumption. Growth and wage levels are expected to be slower in real terms in the immediate future. Fiscal policies may eventfully result in higher taxation, particularly to service government borrowing, some of which will be indirect and therefore industry specific. Interest and exchange rates are also important as they affect disposable income. Interest rates have been slashed by the majority of central banks in developed countries and at the beginning of 2009 ranged from 0. % in Japan to 2. 5% across the Euro zone. Currency markets will probably continue to be volatile during 2009 as analysts assess which governments are following policies aimed at coming out of recession earlier than other nations without driving borrowing to unsustainable levels. It is likely that persistently high levels of unemployment and reduced job security will keep consumer confidence lo w and lead to an increase in the savings ratio. This could impact in several ways on the replacement patterns of high value consumer durables. Replacement may be delayed, satisfied in the second hand market or by trading down when buying new.Global growth is expected to continue to moderate from the peak in 2004 but the speed of the decline in output will vary from region to region as seen in table 1. World trade will slow down, from growth of 10. 1% in 2004, to 5. 0% in 2007 and a forecast of 2. 4% in 2009. Labour productivity and commodity prices are also key issues. Global demand for oil has exceeded supply for much of 2008 with prices peaking at $147 per barrel before plummeting to $5 in early 2009 and in the longer term, China has gone from being a net exporter of oil in 1995 to a position where it is predicted that 55% of its demand will be imported by 2030.There are clear linkages with economic factors as wealth generally leads to raised expectations. In less developed market s, the consumer's initial aspiration is simply for a convenient means of transport over longer distances and in this respect, the Nano from Tata may provide particular advantage. Increasing levels of wealth and confidence bring demands for more sophisticated equipment, greater choice of versions, niche products, passenger safety and consideration of the environment. 9 309-032-1 The degree of nationalism within country markets can also be significant and clear example of this is the German market where buyers display a clear preference for German cars. It is forecast that subsequent generations of buyers will think less along national lines as education, travel and integration all increase. This process will also be accelerated by local production, as demonstrated by Toyota, Nissan and Honda in the UK and VW in China. The need for transport is almost infinitely flexible in relation to its ease and cost. Governments have the task of balancing this need against the economic and ecologi cal considerations as well as the prospect of increased leisure time for many people.There are currently 500 million cars on the road throughout the world and by 2030 this figure is expected to rise to 1 billion with a further 500 million lorries and motorcycles. Road transport accounts for 20% of the global CO2 output and this figure could rise as traffic increases in developing countries. Technology represents another significant industry specific driver and can be considered under process cost, ecological pressure and increased consumer demands for new products increasing choice, comfort, performance and safety.Smart cards implanted in engine management systems will be capable of measuring the quantity of polluting emissions with the results used to prepare individual tax bills. Road side sensors or global positioning satellites will charge heavily for road use during congested periods with reduced or waived charges at other times of the day. The use of robots for assembly is inc reasing and it is estimated that 40% of the world's 610,000 robot population are used in the car industry. This is already affecting the propensity of companies to relocate in areas of low labour cost, as the cost advantage is being eroded.Product development issues will include fuel source, the balance between design and aerodynamics, automation of driver systems, satellite positioning and matching vehicles or versions to individual lifestyles. Process development will be concerned with flexibility, quality and cost issues. Supplier relationships and internal value chains will change in two significant respects due to these factors :1 Ã¢â¬â Car manufacturers increasingly lack capabilities in relation to new technologies and are out sourcing total solution provision to first tier suppliers, who are in 10 309-032-1 urn responsible for relationships with second and third tier companies. 2 Ã¢â¬â Process technology is becoming so specialised that manufacturers are having to develo p in house capabilities in order to supply their exact requirements. It is also forecast that differentiation and the complexity of technology will tie customers to authorised service dealers throughout the life of the vehicle. This will alter the relationship between margins made on the sale of a car and those subsequently derived from servicing and the sale of replacement parts. Outlook for the Global IndustryThe production and supply of cars has been concentrated in the three zones of the triad until recently, however there will be a degree of fragmentation over the next ten years as Eastern Europe, South America, China and India develop both in terms of consumption and production. The Chinese government welcomes foreign direct investment and has relaxed rules for setting up businesses and realises that foreign capital and 21st century technology can help the country to industrialise more quickly. There are five major indigenous car manufacturers in China as well as many smaller companies.Their main problem is a lack of both brands and designs. Shanghai Auto is number one in the domestic market and ranked at 373 in the 2008 Fortune Global 500, but still only produces 800,000 cars a year through joint ventures with GM and VW and this provided the rationale for the purchase of MG Rover assets and the 2007 merger with the Nanjing Automobile Company . Table 2 Ã¢â¬â 2009 vehicle sales forecasts Ã¢â¬â 2007 versus 2009 (millions of cars) Country New 2009 forecast Original 2007 forecast % Decrease USA 14. 3 18. 6 23. 0% Western Europe 14. 0 16. 9 17. 0% China 8. 0 7. 9 unchanged Japan 4. 8 6. 0 20. 0%Eastern Europe 5. 8 3. 6 India 1. 8 2. 1 14. 0% South Korea 1. 6 2. 1 24% (61% increase) Sources: Ernst and Young, Fortune, SMMT, Business Mirror, FT & Reuters 11 309-032-1 It can clearly be seen that the short term growth opportunities are in Eastern Europe and possibly China. The big European and North American producers face massive structural problems, pensio n deficits, overcapacity, mature markets and falling prices. Emerging markets offer some relief but competition will be at least as fierce and may require a move to smaller, lighter cars and this will favour some manufacturers more than others.Dongfeng Nissan and Geely Automobile in China are both forecasting sales increases during 2009, based on their range of small, inexpensive models. The motor car will increasingly be a target for environmentally motivated taxation and legislation. Industry rationalisation is long overdue, but government and unions in some countries will resist any attempt by manufacturers to cut large numbers of jobs and this tension will be a feature of 2009/10 as governments attempt to counter rising unemployment and balance public finances.Much of the cost pressure being felt by OEMs is being passed onto suppliers or eased by relocating manufacturing and sourcing to Eastern Europe and China. Currently, 33% of all suppliers have manufacturing facilities in Ea stern Europe and 17% in China and this trend will continue with Western Europe and the U. S. adding value through marketing, engineering and design, though this raises the issue of technology theft and intellectual property rights. Russia, Poland, Hungary and the Czech Republic are the most important sales markets in Eastern Europe and also represent important manufacturing locations along with Slovakia and Slovenia.China is now VWÃ¢â¬â¢s second largest sales market after Germany and General Motors generated 44% of global earnings from the same country, both companies plan a series of new vehicle launches during 2009. Russia is also a potentially large market with 144 million people and car ownership only one third of the level in Germany. Sales have doubled to over 3. 5 million units a year, (P. W. C. ) but the forecast for 2009 is a 15% reduction as the effect of lower oil prices affects the economy.German and Japanese cars are in high demand, though the government has decreed t hat 80% of officials should drive Volgas with the remaining 20% being supplied with BMWs built in Kalingrad and Fords made near St Petersburg. The Russian OEMs such as Moskvitch, Gaz and Ural tend to focus on the largest part of the market which is for cars costing less than $4000. Other manufacturers with plants already there, include Renault, GM and VW, with Nissan, Hyundai, Peugeot and Mitsubishi currently constructing new facilities, (Business Week). Renault has become partners with Avtvaz, paying $1 billion for a 12 309-032-1 5% stake in early 2008 and the next phase, according to PWC will be the emergence of a powerful components industry to supply as foreign brand cars manufactured in Russia are forecast to rise to 2 million by 2012. Ford, VW and Renault have all announced extended plant shutdowns during the early part of 2009, (New York Times), however PWC still forecasts that despite these short term difficulties, sales will continue to rise to six million units by 2014 and analysts at Russian agency Avtostat, predict that Russia will be the third largest car market in the world by 2012, behind only the US and China.Eastern Europe is improving in terms of productivity and competitiveness, is close to major EU markets and combines low wages with a skilled work force. Political pressure will focus on the production of cars suitable for export markets in order to earn currency, but government attitudes to foreign direct investment may improve if Russia joins the WTO. Collaboration between Eastern and Western European companies is growing rapidly, based on the mutual benefits of technology/skills transfer and market entry.Ironically, economic measures aimed at strengthening local currencies in order to reduce inflation, are making it more difficult for exporters to remain competitive. GM and Ford have invested in low volume production but many of the other OEMs have adopted a more cautious approach, although Toyota, Daewoo, Mitsubishi and Renault are succ essfully importing cars. The level of global sales and therefore production in 2009 is very difficult to forecast as it depends largely on how quickly financial institutions make credit available at somewhere close to previous levels. 0. 2 million cars were manufactured in 2007, falling to 67. 9 million in 2008, (J. D. Powers). Honda forecasts that European production will fall by over 12. 0%, but increase by 5% in China during 2009. VW expects the whole year to be difficult, particularly the first two quarters. PWC is forecasting a 17% fall in sales in the US, 12% across Europe and 5% in Asia Pacific. The firm remains upbeat about 2010, predicting a recovery in global sales of up to 15%. 13 309-032-1 Table 3 Ã¢â¬â Preferred Manufacturing Locations Country Very attractive Attractive Total Czech Republic 0% 44% 94% China 71% 18% 89% Hungary 40% 45% 85% Poland 36% 46% 82% USA 36% 33% 69% Slovakia 40% 28% 68% South Korea 16% 48% 64% Mexico 21% 39% 60% Western Europe 18% 23% 41% Indi a 15% 23% 38% Brazil 14% 21% 35% Ukraine 15% 18% 33% Romania 10% 23% 33% Slovenia 16% 14% 30% Bulgaria 5% 19% 24% 11% 10% 21% Argentina 5% 11% 16% Thailand 5% 8% 13% Vietnam 0% 10% 10% Russia 4% 4% 8% Australia 1% 3% 4% Croatia 1% 1% 2% Yugoslavia 1% 0% 1% Japan Source: Ernst and Young Competitive Analysis The global market leader during 2007 in terms of volume was GM which produced 9. 5 million vehicles compared with Toyota at 8. 5 million, however adding Daihatsu, (a wholly owned subsidiary) brings ToyotaÃ¢â¬â¢s total production level with GM and as can be seen in the table overleaf, Toyota now produces more cars than GM when commercial vehicle sales are discounted. It is also worth noting that if the production figures for Renault with Nissan are combined, they climb to fifth place ahead of Honda. 14 309-032-1 Table 4 Ã¢â¬â World Ranking of Manufacturers 2007 Rank Group Total (Millions) Cars Total Vehicle Production 72. 18 56. 30 1GM 9. 34 6. 26 2 Toyota 8. 53 7. 21 3 VW 6. 27 5. 96 4 Ford 6. 25 3. 56 5 Honda 3. 91 3. 87 6 PSA 3. 46 3. 02 7 Nissan 3. 43 2. 65 8 Fiat 2. 68 1. 99 9 Renault 2. 67 2. 28 10 Hyundai 2. 62 2. 29 11 Suzuki 2. 60 2. 28 12 Chrysler 2. 54 0. 75 13 Daimler 2. 10 1. 33 14 BMW 1. 54 1. 54 15 Mitsubishi 1. 41 1. 10 16 Kia 1. 37 1. 29 17 Mazda 1. 28 1. 16 18 Daihatsu 0. 86 0. 71 19 Avtovaz 0. 73 0. 73 20 FAW 0. 69 0. 69 21 Tata 0. 59 0. 24 22 Fuji 0. 58 0. 51 23 Chana Automobile 0. 54 0. 54 24 Beijing Automotive 0. 45 0. 45 25 Dongfeng Motor 0. 44 0. 44Source: International Organisation of Motor Vehicle Manufacturers (OICA) It is notable that four firms in the top 50 produce fewer than 100,000 cars a year and fifteen make fewer than 250,000 cars and the top ten Chinese companies only produce around 3 million cars between them, while Tata has a long way to go before it becomes a volume player. 15 309-032-1 Table 5 Ã¢â¬â World Vehicle Production by Country in 2007 Country Total Vehicle Production (Millions) Japan 11. 60 USA 10. 80 PR China 8. 90 Germany 6. 20 South Korea 4. 10 France 3. 00 Brazil 2. 95 Spain 2. 90 Canada 2. 60 India 2. 30 Mexico . 10 UK 1. 75 Russia 1. 65 Italy 1. 30 Thailand 1. 25 Turkey 1. 10 Iran 1. 00 Czech Republic 0. 95 Belgium 0. 85 Poland 0. 80 Source: International Organisation of Motor Vehicle Manufacturers (OICA) Corporate Strategies Diversification is still common within the automotive industry, however the most prevalent strategy is forward integration. Most of the added value is now derived from finance, servicing and the sale of spare parts. Growth by acquisition has been used by G. M. , Fiat, Tata and VW to overcome mobility barriers and gain presence in the upper luxury segments, although G.M. in particular is more focused on the U. S. market in this respect. Toyota and Honda conversely, chose organic growth by establishing the Lexus and Acura brands organically. BMW now has its own range in the important four wheel drive market 16 309-032-1 and itÃ¢â¬â¢s acquisition of Rolls -Royce leaves them with a more sustainable portfolio, including Mini, which it retained when it sold MG Rover. Mercedes on the other hand, is relying on brand extension and the rebirth of the Maybach brand to increase volume since the end of its ill fated merger with Chrysler.The successful merger between Renault and Nissan raises question about the two remaining European independents, PSA and Fiat. Collaboration As markets mature, manufacturers are being forced to cut costs and increase scale. The manufacturing process has had most of the possible cost squeezed out in the last ten years. Companies already buy components from each other or share development costs, for example the alliance between PSA and Renault to supply gearboxes. Collaboration is based on mutual need and can either be used to spread costs or as a market entry strategy.There appears to be a shift of emphasis from the interchange of resources towards combining, as well as a more open attitude by Western companies t o close co-operation. It is becoming multi dimensional as manufacturers analyse their value chains, not only with a view to outsourcing, but on a geographical basis. Relocation, rationalisation and new bases for supplier relationships will dramatically alter the profile of the entire industry by 2010 There are a number of parallel developments occurring:Ã¢â¬ ¢ The component supply industry has tiered, with Tier 1 suppliers becoming solution providers.They develop and supply whole vehicle systems such as brakes, engine management, steering and suspension. Ã¢â¬ ¢ These suppliers have becoming knowledge partners and have taken on the role of managing relationships with tiers 2 and 3, who have found themselves isolated from the car manufacturers. Ã¢â¬ ¢ Technology is increasingly complex and from outside the traditional automotive industry. Electronics, currently constitute around 23% of the value of a car, this will rise to 40% by 2010. Ã¢â¬ ¢ As technology becomes more intelligent , components can be tailored to a wider range of applications.Software can now be used to alter the power and 17 309-032-1 torque profiles of diesel engines using inbuilt codes, offering the opportunity to use one engine across a wide range of model sizes. It could also be combined with GPS to automatically limit speed to the legal maximum. Ã¢â¬ ¢ For this reason, specialist suppliers are achieving greater economies of scale than even the largest OEMs can hope to achieve in house. Ã¢â¬ ¢ Car makers are reducing the number of varying components even at platform level, but increasing consumer choice by offering more variants in terms of trim and accessories. They are recognising the concept of Ã¢â¬Å"needlessly uniqueÃ¢â¬ components, where the cost of developing many alternatives does not raise customer perceptions of value. Ã¢â¬ ¢ Components which the customer perceives to be invisible will be standardised. These will include chassis, steering, driveline and braking systems. Ot hers will be made common where possible, including instruments, controls and airbags. Only variants required to be different by the customer will be specific to models and examples of these include paintwork, exterior trim, fascia and glass. Ã¢â¬ ¢Component suppliers are being forced to grow, in order to stay within cost targets set by their customers. Suzuki insists that all main suppliers with fewer than 100 employees must merge with other suppliers. Global car makers logically require global component suppliers. Ã¢â¬ ¢ Car companies will increasingly become assemblers as they turn their main strategic attention towards, design, marketing and their distribution channels. Technology and Research and Development It is becoming more difficult to sustain competitive advantage through product differentiation.OEMs however, are continuing to invest heavily in research and development in an attempt to attract customers and no detail is seen as insignificant. Audi claims that its new V10 R8 is the first car in the world with all LED headlamps and rear-view mirrors have become high tech, with power folding, photo chromic glass and vision cameras aimed at pedestrian or occupant detection. It is likely 18 309-032-1 however that the technology focus will increasingly be on new fuel sources and lower pollution levels as firms attempt to anticipate future customer demands.Pollution and Resource Consumption Pollution has evolved from a series of localised problems into a global issue. The range of pollutants is also increasing and now includes CO2, CO, NOx, SO2, CFC, Methane and Nitrates. Automobiles currently have 80% of the global personal transport market and 55% of goods transportation. Their effect on the natural environment is therefore significant and ranges from 5% of total SO2 emissions up to 70% of all CO2 emissions. Noise and waste products also contribute to environmental deterioration.More than 500 kg of every car produced ends up in land fill sites, accounti ng for 4% of total rubbish weight. Companies are beginning to take these issues seriously as it is probable that eventually they will bear responsibility for disassembly and total recycling. Renault for example spends 30% of total R & D budget and employs 1000 people on environment related issues. This is shared between compliance with future regulation and attempting to gain advantage over competing companies.The Euro 96 norms mean much tighter controls over emission levels and these are mirrored by U. S. legislation. No detail is too small to escape attention in this constant search for technological advantage. In Europe for example, 180,000 tonnes of fuel evaporates every year during the refuelling process and fuel tanks are being redesigned to eliminate the problem. Reduction in fuel consumption is a major research area and engines are being developed with reduced friction, more efficient combustion and better ignition.Diesel cars remain an alternative and work also continues on small electric cars. Engines capable of using renewable fuels such as Soya oil have been in existence since the 1970s, but unless governments deliberately favour these alternatives via changes in taxation policy, they will only slowly gain acceptance. There are encouraging signs however, in Sweden 66% of orders for the new Saab 95 are for the version that runs on 85% bio ethanol derived from sugar cane and British Sugar is considering building a bio ethanol plant in the U.K. Hybrid vehicles running on oil 19 309-032-1 based fuel and electricity are gaining in popularity and fuel cell cars will be on the road by 2020 Table 6 Ã¢â¬â World Commodity Prices Ã¢â¬â 2000 to 2010 Commodity prices, 2000-2010 Percent change Forecast Commodity 2000-2005 -26. 4 1. 8 33. 9 1. 0 57. 2 -10. 8 -4. 2 3. 1 33. 9 97. 8 -23. 1 -10. 0 29. 1 17. 0 22. 4 -19. 1 -4. 3 12. 7 20. 0 28. 4 -21. 5 -1. 3 10. 0 25. 6 35. 2 -23. 3 -0. 3 18. 4 26. 1 50. 9 -28. 9 2. 6 22. 7
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School Uniform is beneficial and vital to the success of a school district. They allow for students to focus on studies and create a cultural environment and more beneficial in the long term. I am not totally against Non Uniform; however, I recognize that there are more advantages of having a school uniform than non-uniform. Uniforms are an essential and should be a basic component of every school system. School uniforms has had scientifically proven benefits to schools and students. For instance, as children and teenager matures, they begin to form their self identities (Erik Erikson and Self-Identity). For them, the desired to impress others, including peers is very significant. The need to purchase specific designer, brand name or an emerging trend of clothing to achieve the support of other peers (Prendergast Wong, 2003) as they try toÃ¢â¬Å"fit inÃ¢â¬ with right clothing choices with their peers is important. Likewise, having a school uniform policy in place in the sch ool district will help minimize status between students. By removing the option for different types of clothing it reduces the non-academic distractions inside the class. Students who are influenced to wear the school uniform will become unwilling to disclose ideas and stop their desires for determining status. The school educators will spend less time putting attention to dress code. Students will remain focused more on academic discussions daily rather than their self appearance. As for rules,Show MoreRelatedSchool Uniforms Should Be A Basic Component Of Every School System1299 Words Ã |Ã 6 Pagestalk with my daughter whose school utilizes a school uniform policy and I observe other families whose children are not required to wear school uniforms, along with the research I have completed I have come to the conclusion, school uniforms are beneficial and vital to the success of our Public School District. I am not totally against children wearing regular clothes; however , I recognize that there are more advantages of having students wearing school uniforms. Uniforms allow students to focusRead MoreSchool Uniforms Should Be A Basic Component Of Every School System1299 Words Ã |Ã 6 Pagestalk with my daughter whose school utilizes a school uniform policy and I observe other families whose children are not required to wear school uniforms, along with the research I have completed I have come to the conclusion, school uniforms are beneficial and vital to the success of our Public School District. I am not totally against children wearing regular clothes; however, I recognize that there are more advantages of having students wearing school uniforms. 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However, it is the way and the process of how one achieves ones target or goals and it is in this respect that management is considered an art and a science as well.Ã Management comprisesÃ planning,organizing,Ã staffing,Ã leadingÃ or directing, andÃ controllingÃ anÃ organizationÃ (aRead MoreImplementing An Organization Operating Capabilities Internationally2127 Words Ã |Ã 9 Pagesdifficulty identifying what customers in different regions of the world really want and have ended up closing stores in some regions, and shelving plans to expand into others. The American discount retailer Target has a history of growth, expansion and success within U.S. borders and has managed to develop a reputation that is synonymous with a higher quality product offering and retail environment than that of their competition. Target has taken a steady growth approach in regards to expansion within
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Sample details Pages: 9 Words: 2666 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? The underlying theory of the following discussion relates to Portfolio Theory. Assessing a risk-return profile of a portfolio entails not only determining the portfolio expected return and comparing it with the expected portfolio standard deviation of returns, but also assessing the correlation of expected returns between the assets making up the portfolio. The Portfolio Expected Return and Standard Deviation The portfolio expected return is the weighted average (percentage value) of the expected returns for the portfolios individual assets. For a two asset portfolio,Ã Ã the Portfolio Expected Return is calculated as follows:- The portfolio standard deviation encompasses not only the variances of the individual assets, but also the covariance between the rates of return for the pair/s of assets in the portfolio. Covariance measures the degree to which two variables move together relative to their individual mean values over time. Its magnitude depends on the variances of the individual return series and also the relationship between the series. CorrelationÃ Ã is a statistical measure of the degree of relationship between two variables in terms of a range between -1.00 and +1.00. A portfolio standard deviation (in terms of correlation) is calculated as follows:- In order to evaluate the risk return profile and the diversification effect of a portfolio made up of two assets (Example illustrated in Table 1), we are going to take four Cases with differing correlations. For each Case, we are also going to illustrate three Portfolios with different weightings. Table 1 Case A A -1 correlation depicts a perfect negative relationship and represents the true benefits of diversification for minimizing risk. Had the two assets individual returns and standard deviations been equal, the standard deviation would have been zeroÃ Ã . Amongst the four Cases, this Case yields the lowest value of portfolio standard deviation. Case B Perfectly positive correlation means that the standard deviation for the portfolio is the weighted average of the standard deviations of the individual assets. A value of +1 indicates a perfect positive linear relationship between the two assets thus exhibiting no diversification benefits and highest portfolio standard deviation value. Diversification benefits would only be observed in cases where there is less than perfect correlation. Case C A zero correlation means that the change in price of one asset has no effect on the price change of the other asset. The returns have no linear relationship, that is, they are statistically uncorrelated. Varying portfolio weightings under such scenario, would not explain anything on the overall portfolio risk. Case D The actual correlation of 0.67% has a positive value closer to 1 indicating a positive linear association between the two assets. Similar to what happened in Cases A and C, when comparing the outcomes for Portfolios 1 and 2, it would transpire that despite of the increasing proportion of the riskier asset (Canon), the overall standard deviation is lower. This is due to the diversification effect and the less than perfect correlation is acting as a hedge to a portfolio composed solely of Toyota. As the percentage held in Canon is increased, it eventually causes the portfolio standard deviation to rise. Plotting the dat a for the three Portfolios for the four cases would result in four opportunity sets that would reflect potential combinations of efficient frontiers outlining also, the minimum-variance portfolioÃ Ã . The Portfolio having the lowest correlation would have the bandiest type of curve to the left. Thus, investors could maintain their rate of return while reducing the risk level of their portfolio, by combining portfolios that have a less than perfect positive correlation. A notable result of Cases A, C and D in Table2 is that with a correlation of less than 1, it is possible to derive portfolios that have lower risk than either single asset. A basic principle of correlation is that as correlation falls below 1, the portfolio standard deviation must fall as more diversification effect would be present. This feature is evident in Table2. Toyota and Canon, both Japanese export companies, tend to be heavily effected by the fluctuations in the Japanese YenÃ Ã . Thus, a pri ori, one would expect some level of positive correlation (Exhibit 3). Given a correlation of 0.67, a diligent investor could still be careful in choosing the best combination of assets yielding maximum return for a given level of risk. In our example, for Case D (out of the three possible portfolios), a risk averse investor would choose Portfolio B, as it carries the highest return at lowest risk. Despite of effective asset allocation, there may still be systematic risks which would affect even a portfolio made up of totally uncorrelated assets. Nonetheless, diversification is a key tool against random events in the market, especially during periods when the correlation level across various assets is high. DonÃ¢â¬â¢t waste time! Our writers will create an original "The Risk And Return Profile Of Portfolio Theory Finance Essay" essay for you Create order Part 2 Introduction This part of the essay shall outline commonly-used Capital Budgeting measures. A discussion will follow detailing the benefits of two popular measures, which would at the same time, shed light about the short-comings of competing measures. Capital Budgeting is a cost-benefit exercise, entailing the process that companies use for making corporate investing and financing decisions on capital projects. Projects to be undertaken would be accepted or rejected based on the criterion being used. Capital Budgeting Measures (CBM) Net Present Value (NPV) NPV represents the difference between the present value of all future after-tax cash-flows (discounted to their present value by the required return r the opportunity cost of capital). The NPV is then compared with the capital outlay required by the investment. An investment would be worth undertaking if its return is at least equal to the return available in the financial markets. Since the NPV represents the amount by which the i nvestors wealth increases as a result of the investment, the decision rule for the NPV is to accept a project if NPV is greater than zero. Conversely, a project would be rejected if NPV is less than zero. Internal Rate of Return (IRR) IRR is calculated by discounting the net cash-flows at the IRR, until NPV is equal to zero. The discount rate in this measure is the IRR instead of r and does not depend on the interest rate prevailing in the capital market. Therefore, the number is intrinsic to the project and depending only upon the projects cash-flows. The decision rule for the IRR is to invest if the IRR exceeds the required rate of return for a project. Payback Period (PP) This method focuses on payback rather than profitability and it measures the number of years required for a project to recover its initial investment. PP considers that the shorter the payback period, the more attractive the investment is. Discounted Payback Period (DPP) This method follows the same principle followed by the PP method but also takes into consideration the time value of money. Accounting Rate of Return (ARR) ARR is the average project earnings after taxes and depreciation, divided by the average book value of the investment during its life. Profitability Index (PI) PI is the present value of a projects future cash-flows divided by the initial investment. This measure is closely related to NPV, in the sense that the PI is the ratio of the present value of future cash-flows, while the NPV is the difference between the present value of future cash-flows and the initial investment. A basic principle of this measure is that whenever the NPV is positive, the PI will be greater than one. In such case, one should accept the project and when PI is less than one, the project should be rejected. Limitations of CBM Graham and Harvey (2001) presented a Survey regarding the most comprehensive measures used for capital budgeting. The Survey delves into the usefulness of these tools and reports the frequency of the use of commonly used measures used by U.S. and European corporations. From the Survey it transpires that besides NPV and IRR, other measures are also heavily used. The key attributes of NPV include the fact that it uses cash-flows rather than earnings and that the discounting factor caters for the time value of money. IRR is also widely used and occasionally preferred by certain companies, in view of its underlying benefits. For independent projects, using NPV and IRR often yields the same findings. Yet, there are cases involving two mutually exclusive projects, where the two measures would be in conflict. In such cases, using IRR would not be as effective as when using NPV, thereby transpiring some of the IRRs deficiencies. A limitation of IRR relates to the problem when a project has a mixture of positive and negative cash-flows possibly resulting in multiple IRR values. In this regard, NPV would be able to handle multiple discount rates as each cash flow would be discounted separately. Furthermore, in the case of mutually exclusive projects, differing cash flow patterns can cause two projects to rank differently with NPV and IRR. Another circumstance that may cause differing results between the two measures, relates to the size of projects. In view of the more realistic discount rate that the NPV uses, when conflicts exist between the two measures, NPV criterion is deemed as more appropriate. The results of the Survey depict IRR as the most popular approach. This is presumably not surprising, in view of the several benefits of IRR which nearly equal those of NPV. Many firms may perceive NPV as complex and that it requires assumptionsÃ Ã at each stage, whereas IRR simplifies a project to a single number that decision makers may utilise to deter mine a projects viability. Further to the above, albeit being the strongest measure, NPV has also other pitfalls, such as the sensitivity to discount rates, which when varied, may yield very different NPV results. Moreover, the possibility that an investment would not have equal risk throughout its entire time horizon may require the decision maker to make use of more than one discount rates and hence resulting in a more cumbersome process. Payback method ignores the time value of money and the risk of the project. Moreover, it also overlooks cash-flows after the payback period is reached. Yet, the Survey outlines that it is still heavily used in view of its simplicity and its usefulness as a measure of liquidity. By choosing this method, the risk of loss related with changes in economic conditions and obsolesces, may also be lessened. DPP does account for the time value of money and risk, but it ignores cash-flows after the discounting payback period is reached. Thus, it m ay not be deemed a good measure of profitability since it ignores cash-flows. ARR is based on accounting numbers rather than cash-flows and it does not account for the time value of money. There is no conceptually sound cut-off for the ARR that distinguishes between un/profitable investments. PI indicates the value one should receive in exchange for each unit invested, considers all cash-flows and time value of money. It is also relatively easy to communicate and considered a useful guide for capital rationing and when available investment funds are limited. Potential flaws of this method include the drawback of having to calculate the cost of capital and the possibility of not giving the correct decision when comparing mutually exclusive investments. When choosing an appropriate measure, besides the underlying limitations, other factors are usually taken in consideration, such as, the firms size and the type of industryÃ Ã . The valuation principles used in capital budgeting are similar to the valuation principles used in security analysis and portfolio management. In fact, many of the methods used in this area are based on these Capital Budgeting measures. Part 3 Introduction This section of this essay examines how market risk models may be utilised for calculating a firms cost of capital. Market Risk Methods When using these methods, the discount rate to be used in evaluating a capital project is the rate of return required on the project by the diversified investor. The discount rate should thus be a risk-adjusted discount rate, which includes a premium to compensate investors for risk. This risk premium should reflect factors that are priced or valued in the marketplace. The Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) capture this risk premium and are two approaches used for calculating cost of equity and finding market based risk adjusted rates. The CAPM approach stems from basic relationship pertaining to CAPM theory:- In this regard, the selection of RF would be guided by the duration of projected cash-flowsÃ Ã . Regarding the equity risk premium, one would typically estimate beta relative to an equity market index to estimate the equity risk premium. CAPM captures both systematic and unsystematic riskÃ Ã and assigns a single market risk premium for each security, whereas APT develops a set of risk premia. For an all-equity firm and for a project whose beta risk equals to that of a firm, a projects discount rate would thus be equal to the CAPMs/ APTs estimate of the expected return. APT accommodates the risks that may not be covered by the market portfolio. Infact, it allows for an explanatory model of asset returns and captures the sensitivity of the underlying asset to economic factors. Like CAPM, APT assumes that discount rates are based on the systematic risk exposure of the security. In general: Once the required rate of returnÃ Ã is determined, this can be used either to find the NPV and hence to determine whether a project is acceptable or not. It may also be used as a rate to compare with the projects IRR. The required rate of return is therefore a hurdle rate and is specific to the projects risk. If we had to remove the assumption that a project has equal risk to that of the firm, the project would then need to be discounted at the rate equal to its own beta and an adjustment would be made to the projects beta. When a firms cost of capital includes both equity and debt, the cost of capital would be the weighted average of each. Hence, after determining cost of equity one also estimate the cost of debt in order to be able to obtain the weighted average cost of capital (WACC) which becomes the applicable discount rate to utilise for the NPVs evaluation. The cost of debt is the firms borrowing rate usually obtained by looking at the yield to maturity on the firms debt. In general, the WACC is:- A mixed-capital structured firm that is considering a project having a different risk to that of the firm, would need to adjust the WACC calculationÃ Ã for the risk of the project. Various studiesÃ Ã have shown evidence that CAPM is the most popular method for estimating the cost of equity capital and that it is used less by smaller, private firms. This result is understandable considering the difficulties related when estimating systematic risk where the firms equity is not publicly traded. References and Websites Bodie Z., Kane A., Marcus A. J. (2007) Part 3 in: Investments 6th Edition (McGrawHill International Edition); Chartered Financial Analyst Program Curriculum; Level I (2008) Volume 4 and Level II (2009) Volume 3 (Pearson Custom Publishing); Hilier D., Ross S., Westerfiled R., Jaffe J., Jordan. B (2010) Corporate Finance Chapters 6, 10, 12 (McGrraw-Hill Higher Education); Research Papers Graham J.R and Harvey C. R (2001) The Theory and Practice of Corporate Finance: Evidence from the field (Journal of Financial Economics 61 (2001) Accessed from the Online Library; Akalu M.M and Turner R (2001) The Practice of Investment Appraisal: An empirical Enquiry? Available from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=370935; Web pages Goetzmann W. N. An Introduction to Investment Theory YALE School of Management Available from https://viking.som.yale.edu/will/finman540/classnotes/class6.html (Accessed 29/04/10); Which is a better measure for capital budgeting, IRR or NPV? (No Author provided) Available from https://www.investopedia.com/ask/answers/05/irrvsnpvcapitalbudgeting.asp (Accessed 29/04/10); Ikeda A. Japanese Stocks Fall as Yen Strengthens-Machine Orders Drop (07/04/2010) Online Bloomberg Businessweek Article Available from https://www.businessweek.com/news/2010-04-07/japanese-stocks-fall-as-yen-strengthens-machine-orders-drop.html (Accessed 03/05/2010).