To finance any upgrade to the current basic service, the university would split the increased costs evenly across staff and faculty budgets (assume an equal number of staff and faculty). The university asked each group (staff and faculty) to vote collectively on which new package should be purchased, if either. What outcome do you expect and why? В. Outcome: Explain, using evidence from the table: С. Assume the vote did not reveal a consensus and return to your recommendation in part A. If faculty and staff were able to make some sort of 'deal’ - one group could compensate the other – is it possible for there to be a mutually beneficial alternative to the basic service? O Yes O No Explain. If a deal is possible, which upgrade would be purchased and who would compensate whom? NYU currently purchases a basic anti-virus computer package that protects university computers used by administrative staff and faculty. This basic service costs the university $7,000 annually, with no additional costs for any individual user. NYU could upgrade its computer protection services, purchasing a slightly enhanced product, Basic plus Bells, for an annual cost of $10,000 or the premium service, Basic plus Bells and Whistles, for an annual cost of $12,000. The table below provides information on how the two affected groups value these options (in total). Costs: Benefits: Staff Faculty Basic $7,000 $3,500 $5,000 Basic + Bells $10,000 $5,000 $7,000 Basic + Bells & Whistles $12,000 $7,000 $7,750 A. Which upgrade, if either, should NYU purchase? Upgrade level: Explain, using evidence from the table:
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
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