Margo’s Memories, a company that specializes in photography and creating family and group photo portfolios, has...

Margo’s Memories, a company that specializes in photography and creating family and group photo portfolios, has 50 stores in major malls around the U.S. The company is considering an online business, which will require a substantial investment in web design, security, payment processing, and technology in order to launch successfully. What potential advantages or disadvantages will be difficult to quantify from a capital investment standpoint?

Expert Solution

Some advantages of Capital Budgeting are as following :
(i) It helps to decide which investment option shall be best to enhance return
(ii) It helps in deciding where any project should be accepted or not and where
capital investment should be done or not
(iii) It helps for long term decision making like more than one year.
(iv) It control the overinvesting
(v) It enhance shareholder's fund

Some disadvantages of Capital Budgeting are as following :
(ii) It does not help for short term investment
(iI) Capital investment method are based on estimation & assumption, while market
are very uncertain
(iii) Discounting factor and internal rate of return basic are not standard and may be
vary manager to manager and industries to industries.
(iv) Capital Budgeting is use for long term decision. So it is risky if the same handelled
by other than professional.

So before making capital investment these advantages and disadvantages should be understand
for Margo's Memories. Margo's Memories should considered potential of advantages and disadvantages
before capital investment like (a) Determine capital needs for the capital expenditure, (b) Evaluate
various alternative i.e. lease or buy option, (c ) Determine economic service life to determine timing
of capital expenditure (d) Use appropriate internal rate of return and take professional advisory for
the same and (e ) Make the final decision after analysing market uncertainity.

ekkarill92 answered 2 years ago

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