Discussion on the working capital policies of companies Term Paper

Discussion on the working capital policies of companies - Term Paper Example These four capital budgeting techniques have been discussed in details in Part-A. This study would assist the junior staff members of MyCompany Plc and would also increase the performance of the company. Capital Budgeting Investment judgments, dividend and financing are critical areas of financial management which needs to be addressed by any organization like that of MyCompany Plc The primary goal or objective of a profit making company like MyCompany Plc is to maximize the wealth of its shareholders. The decisions related to financing refer to the development of an optimal capital structure of the business firm (Clayman, Fridson, and Troughton, 2012, Capital Budgeting). Dividend decision includes the ways in which the profits generated by the business firm are distributed to its shareholders. Lastly, investment decisions refer to the means by which funds are raised by the organizations which are utilized in various operational activities performed by the firm so as to achieve the o verall objective of the business firm (Clayman, Fridson, and Troughton, 2012, Introduction). The organizations are involved in activities which require investments in different types of assets characterized as being both long term and short term. Capital budgeting primarily deals with investments made by the companies which are long term in nature and in larger volumes. These long term investments made by the firms would help in the determination of the strategic position of the firm in future. It has a considerable effect on the cash flows generated by the firm in future. All these facts imply that decisions regarding capital budgeting taken up by firms have an impact which persists for a long term and it is critical to the failure or success of a business firm like MyCompany Plc (Dayananda, 2002, p.1). Capital Budgeting Techniques There are different capital budgeting techniques which are employed by business firms universally. The four capital budgeting techniques have been descr ibed in details here. All of the capital budgeting techniques would help the financial manager of the company to choose the best project and suitable for the firm to invest. There are certain factors which are analyzed before taking the decision, for which the capital budgeting tools are used. They are: a) Generating the cash flows, b) Risk associated with the cash flows generated by the firm in future, and c) The calculated worth of the cash flows which also involved the uncertainties of future (Peterson, & Fabozzi, 2002, p.57). The capital budgeting techniques described here are explained with the help of numerical examples. The projects have been named as Project 1 and Project 2. Both the projects are considered to be mutually exclusive to each other and only one project can be selected out of the two by the company management. Other assumption related to the projects is that both of the projects have a five year lifetime. The initial cash outflow in the year zero is considered t o be ?100,000 for both the projects. Moreover both the projects a