This is best achieved when workers are cooperative

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This is best achieved when workers are cooperative and aim to achieve common goals. 98. Name the types of capital rationing. Discuss capital rationing as a planning tool and comment on the role of computers in this process. Capital rationing can be of two types. "Hard" capital rationing refers to how the maximum total expenditure is viewed, implying that under no circumstances can that maximum be exceeded. Alternatively, management may consider exceeding its self-imposed capital expenditure limit, a condition called "soft" capital rationing: The firm sets a spending limit, but depending upon project desirability and the firm's condition at the time decisions are actually made, the firm may over- or under spend relative to that limit. A firm can get a good picture of the trade-offs among alternative projects using sensitivity analysis , which entails varying the maximum expenditure limit. For example, a firm may find that a small increase in the total expenditure would allow it to undertake the next most desirable project, which may be a worthwhile trade-off. Computer software is particularly useful for soft capital rationing and sensitivity analysis. Once the problem has been formulated, the computer can be conveniently used to obtain alternative solutions simply by changing the constraint values. 99. Describe and discuss the postponement option. Cite some examples in your discussion. The postponement option refers to the option to postpone, rather than cancel, an expansion alternative. A price increase now, followed by an expansion in production capacity, additional advertising, and perhaps even a price decrease later, might be superior to a simple price increase now. Of course, the analysis can become very complex when such additional alternatives are included, because of interactions among the various alternatives. There are many postponement decisions in your personal life. Should you study for an exam now or postpone your studying? Should you try to enter an MBA program now or delay for a period of time. In business, the timing of investments is critical. A profitable investment is sometimes more profitable if it’s delayed. Timing decisions are not easy. For example, consider the difficult decision a college has to make as to remain in school or sign a lucrative pro contract. 100. What is an option? Discuss the value of capital budgeting options for managers. An option is the right to do something without any obligation to do it. When the option is costless, it can simply add to a project's value. However, not all options are costless. Therefore, a project's NPV can be expressed as its "basic" NPV from discounted cash flows (DCF–NPV) plus the value of all options associated with the project minus any costs connected with getting or maintaining those options: NPV = DCF-NPV + Value of options – Cost of options.
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