Are there any recent examples of a capital budgeting decision gone bad (besides Microsoft/Nokia and Sony/Columbia...

Are there any recent examples of a capital budgeting decision gone bad (besides Microsoft/Nokia and Sony/Columbia pictures?

Expert Solution

Capital Budgeting - It is a process used by organizations to determine and evaluate potential large investments or expenses. For example, investments which include projects such as manufacturing a new plant or investing in a long term venture.

When successful large organizations face big changes in their environment because of the competitors introducing new technology, products and strategies, the profits and sales of these organizations go down and stock value also collapses. All this happens only because these organizations fail to act quickly and respond effectively.

Besides Microsoft/Nokia and Sony/Columbia pictures there are some more examples of capital budgeting decision gone bad:

Google and Nest - In 2014, Google wanted to make an entrance into smart homes through the acquisition of Nest Labs. Nest Labs was a 4 year old start up at that time and was founded by two ex - Apple engineers ( Tony Fadell and Matt Rogers). Google acquired Nest Labs for $3.2 billion. At that time, Nest Labs was very popular for its two successful products namely Nest thermostat and Nest protect smoke alarm. Things started changing when Nest was unable to meet Google's annual revenue goals. Product innovation at Nest Labs stalled because of internal fighting and politics. Later, both founders departed the organization turning this deal into a flop.

Yahoo and Tumblr - In 2013, Yahoo acquired Tumblr for $1.1 billion. When Yahoo acquired social networking platform, Tumblr, Yahoo CEO at that time (Marissa Mayer) estimated that the social networking site, that has been growing rapidly would help grow Yahoo's audience by 50%. This would help compete Yahoo with big organizations such as Google and Facebook. However, by 2015, Tumblr was still unable to generate profits. Marissa Mayer merged Tumblr's ad sales team with Yahoo's team and gave the team an unrealistic $100 million sales target for the year which made many employees leave the organization. When Tumblr still was unable to meet the target sales, Yahoo called back the integration and wrote off losses of $712 million from its failed acquisition.

ekkarill92 answered 5 months ago

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