In: Finance
Do you think it is possible and or wise for a company (or investor) to use different methods based on a company's position in their own life cycle? Is it fluid, meaning it can go back and forth depending on a company's position? explain
With reference to budgeting decision, yes it would be wise to use different budgeting decsision based on a company project and the position in their own life cycle. In real world most companies use the net present value amd Internal rate of return approach to deciding capital budget decision, but if you look little closely these methods are used by corporation whose capital size is substantial and cash flow of these projects is spread over a period of time. If you look at small business or a sole proprietor, they are more concerned with how quickly they can recover the cost of the project or their investment so they might consider using payback period. Also, Most company who take such large capex decision are either at mature or stable satge in their life cycle. Startup companies do not necessarily use NPV or IRR to determine the viability of a project.
It is possible to back and forth depending on the situation. It would be wise decision from the senior managemnt point of view if they did consider using different approach to value different projects keeping in mind the nature of the project, the stage in which their company is and the risk associated with the same.