Assume your firm, or a firm you are familiar with, has to make an important decision...

Assume your firm, or a firm you are familiar with, has to make an important decision regarding future expansion through increasing investment in manufacturing equipment (for a manufacturing firm) or opening an additional office/outlet (service sector). Apply basic tools of financial analysis and analyse the various decisions you would need to make as the finance director for the firm. What information do you need in order to make informed decisions?

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Expert Solution

Increasing investment in manufacturing equipment or opening an additional office/outlet amounts to capital investment decision to be made by the firm. It includes decision regarding obtaining appropriate finance including equity investors, banks, financial institutions, venture capital and angel investors. Investing through common stock equity or convertible debt. Investment affecting its working capital requirement. Capital budgeting can be used to decide for investing funds in long term assets. The finance director needs to analyse the projected cash flows of the new investment to be made, its incremental cash flows in future. The company needs to asses its project analysis & valuation, return and risk involved corresponding to the future expansion. Several factors affect the decision made by the company such as :

The outlook of the management regarding option opted for expansion.
Opportunities which are created by technological changes
Strategy of the competitors in the industry
Cash flow budget
Fiscal Incentives
Market Forecast

For opening an aditional outlet decision regarding place of business & its location, availability of resources analysis will affect the efficiency & effectiveness of the company.

ekkarill92 answered 1 year ago

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