Question

Analyze why, despite employing various investment appraisal techniques, large investment projects in big corporations may fail to deliver their estimated cash flows. Critically assess how a failed capital project may affect key stakeholders and shareholder value, and also shape the future strategy of investment capital. (<1000words)

Please use your own answer!!!!!

Thanks a lot!!!

Answer 1

Answer: Investment appraisal techniques- These are also called Capital budgeting techniques:

• Discounted Cash flows or NPV
• Payback period
• Discounted payback period
• Internal rare of return (IRR)
• Accounting rate of return (ARR)

These are the techniques that are used to evaluate the worth of the project. NPV evaluates the excess of cash inflows over cash outflows, Payback period evaluates how much time, it will take to cover the cost of the project while IRR determines the rate at which NPV of all cash flows is equal to zero.

With the help of capital budgeting techniques, a project is approved or rejected, despite these many techniques, capital project fails sometimes because of poor evaluation and poor execution. Most of the time, big projects fail.

Effect on stakeholders- Stakeholders are the people who are directly or indirectly related to the company. For example: Customers, Creditors, Government, employees, public etc.

Customers- Loyal Customers eagerly wait for the company's new launch or new project when it fails then customers get disapointed and they may switch to other brand.

Creditors- Creditors provide loan to the company to fund the project, this loan is heavy in amount, when a project fails, creditors have fear whether they will get their money back or not, if yes then when? Because company's project has failed, it will take much time to get over this so creditors money get stuck in the project.

Government- Government helps companies in new projects and companies also help Government by coming up with new investments, if a project fails, company will suffer loss, it will not be able to pay taxes on times so Government will suffer.

Suppliers- Suppliers supply raw material to the company, if a project fails, suppliers' money may get stuck, they may not receive the payment early, it may be delay in paying them.

Employees- When a company's big project fails, it suffers huge loss and sometimes it is not able to pay the salaries to its employees.

Shareholders- Shareholders are the real owners of the company, they invest into the company by buying shares, if company's project fails, company will not report net profit and shareholders will not get any dividend and due to a project failure, company's share will not do well in the share market so shareholders will not get any capital appreciation.