Discussion Post #6

docx

School

Colorado State University, Global Campus *

*We aren’t endorsed by this school

Course

580

Subject

Economics

Date

Feb 20, 2024

Type

docx

Pages

Uploaded by ProfWaterPelican44

When you are studying capital budgeting, you go through a lot of work to come up with an investment decision. However, you have made many assumptions along the way to form what seems like a value-maximizing decision. Choose an assumption that you might make and discuss the risks associated with that assumption. Choose an assumption that has not been selected by your classmates and do not duplicate assumptions. Since there have been quite a few classmates that have already responded to this discussion post, it is a little more difficult to find a unique assumption. However, something that I don’t believe has been discussed yet is the size of the firm and their goals. Capital budgeting assumes that the primary goal of each decision is to maximize firm value. Although this is the case for most large firms, an entrepreneur might start a business for a different reason. A few examples might include establishing a company to avoid unemployment, boredom, or to develop market innovations (Keasey, 1994). We assume that the goal of the company/investment decisions are to maximize value, but in these cases, the primary goal could be to simply maintain the viability of the business. To expand further, a small business or company might not have the expertise needed to evaluate projects using discounted cash flows. Instead, they might use a more simple method such as payback period. Or, a smaller company might lack the bank relationships needed to finance a large project or investment. If the company is looking to borrow from the public market, it can be very expensive to enter (Brigham, 2019). Lastly, future cash flows are difficult to produce from a newer company as there is limited information available regarding past performance. All of these factors pertain to the assumption that a smaller firm is aiming to maximize value when deciding on an investment. However, as noted above that is not always the case. Reference: Brigham, E. F., Ehrhardt, M. C., & Fox, R. (2019). Financial Management: Theory and Practice. Cengage Learning. Keasey, K., & Watson, R. (1994). The Bank Financing of Small Firms in UK: Issues and Evidence. Small Business Economics , 6(5), 349–362. http://www.jstor.org/stable/40239908

Discover more documents: Sign up today!

Unlock a world of knowledge! Explore tailored content for a richer learning experience. Here's what you'll get:

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Related Documents

Quiz Higher Education Expenditures.docx

Home Work 3 - Fall - 2023 - Answer Key.pdf

IHP515 Module 3 Questions_new version_final.docx

Home Work 1 - Fall 2023 - Answer Key.pdf

ACC 345 Mod 5 Discussion.docx

Topic 5 DQ 1 (Obj. 5.4) swk 520.docx

Discussion Post #4.docx

Discussion Post #1.docx

Apple Case-2.docx

Apple Case-3.docx

3.2 Answer Sheet _ Modeling Basics (2) (1).pdf

Assignment ^N4 - Risk and Time Value of Money.docx

Recommended textbooks for you

Managerial Economics: Applications, Strategies an...

Economics

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Cengage Learning

Microeconomic Theory

Economics

ISBN:9781337517942

Author:NICHOLSON

Publisher:Cengage

EBK HEALTH ECONOMICS AND POLICY

Economics

ISBN:9781337668279

Author:Henderson

Publisher:YUZU

MACROECONOMICS FOR TODAY

Economics

ISBN:9781337613057

Author:Tucker

Publisher:CENGAGE L

Micro Economics For Today

Economics

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Cengage,

SEE MORE TEXTBOOKS

Recommended textbooks for you

Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Microeconomic Theory
Economics
ISBN:9781337517942
Author:NICHOLSON
Publisher:Cengage
EBK HEALTH ECONOMICS AND POLICY
Economics
ISBN:9781337668279
Author:Henderson
Publisher:YUZU
MACROECONOMICS FOR TODAY
Economics
ISBN:9781337613057
Author:Tucker
Publisher:CENGAGE L
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,