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Major factors that contribute to an employee’s decision to join a union

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Post date June 6, 2021
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After reading chapter-11 and chapter-12 from the attached textbook answer the following questions. Answer should be in own words and strictly no plagiarism, no copy and paste from other resources. APA format must and answer in own words as thorough as possible.

Discuss three major factors that contribute to an employee’s decision to join a union. Discuss the five reasons that have contributed to the trend of decline in unionization.
How would a manager use the progressive disciplinary action approach? How would the use of this approach prevent employees from being surprised if they are terminated?

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Different biases in decision-making.

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Post date March 16, 2021
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In this unit, you learned about the different biases in decision-making. For this assignment, you will compose an essay that examines these biases. In your essay, briefly describe each of the three general heuristics covered in Chapter 3 in the textbook (availability heuristic, affect heuristic & confirmation heuristic). Then, pick one or more of the three heuristics, and describe an original decision-making scenario that conveys how the heuristic and associated bias(es) played a part in the outcome. Explain how the biases could have been overcome to improve the decision.

This scenario can be real or imagined, and it can be about personal or business decision-making events. You should not use the scenarios or examples given in the textbook. Be sure to use what you have learned about the heuristics and biases to create your scenario.

In your essay, include both an introductory paragraph with a topic sentence and a conclusion. Your essay must be a minimum of three pages in length, and it must include at least two references, one of which must be the textbook and one of which must be another academic source. Any information from a source must be cited and referenced in APA format

Reference: Bazerman, M. H. & Moore, D.A.. Judgment in managerial decision making (8th ed.) [Vitalsource Bookshelf version]. https.//online.vitalsource.com/#books/9781118543139

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Different biases in decision-making

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Introduction

The core of the act of management is decision-making and the quality of decision determines the success of an organization in a competitive environment regardless of the amount of information and large numbers of alternatives(Bazerman & Moore, 2013). Research have showed that wrong decisions have costed many businesses since it leads to lose in market value and run out of business. It is important to note that quality decision cannot be achieved through only models and systems, there is need to counsel humans to improve the way they think, analyze information and make decisions.

Decision making is key concerned with the process by which alternatives are evaluated and options selected for implementation. Decision-making can be described to encompass mental processes where a selection of course of action is taken after evaluation of several alternatives(Dale, 2015). This means that decision-making involves the use of efficient thinking strategies termed as heuristics. A heuristic is defined as “a mental shortcut that helps us make decisions and judgements quickly without having to spend a lot of time researching and analyzing information”.

This is an indication that heuristics play critical role in both decision-making and problem-solving process. However, while heuristics speed up decision-making and problem-solving process, it introduces biases and errors in the process(Albar & Jetter, 2009). There are several heuristics people uses in decision-making ranging from general to very specific, and they serve various function in the decision-making process. This essay analyzed three general heuristics: availability heuristic, affect heuristic & confirmation heuristic.

Availability heuristic Availability heuristic is described as a tendency or probability of an event by the ease with which relevant instances come to mind. Its essence, it acknowledges that individuals typically assess the likelihood of an event by the ease with which examples of that event can be brought to mind(Bazerman & Moore, 2013). Typically, people will recall events that are recent, vivid, or occur with high frequency. Availability heuris…………………………………………………………………………………………………

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Rational decision-making in investment decisions.

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Post date March 16, 2021
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In this unit, you explored rational decision-making in investment decisions. For this assignment, you will delve deeper into this concept. To complete this assignment, use the CSU Online Library to select an article related to rational decision-making in investments. Then, summarize and critique the article by applying concepts you learned in the unit. In your critique, be sure to include the information below.

Explain how the rational decision-making process can be applied to investment strategies.
Identify investment strategies for long-term optimal growth.
Explain how fairness and ethics can be applied to investment decisions.
Your article critique must be at least three pages in length. You may use other sources besides your chosen article if necessary, but this is not required. Be sure to format your paper and cite and reference any sources used (including the article) in accordance with APA guidelines.

Textbook:
Bazerman, M. H., & Moore, D. A. (2013). Judgment in managerial decision making (8th ed.) [VitalSource Bookshelf version]. Retrieved from https://online.vitalsource.com/#/books/9781118543139

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Article Critique – Rational Decision-Making

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Introduction

This article critique essay focused on the article “Transformational, transactional leadership and rational decision making in services providing organizations: Moderating role of knowledge management processes”(Riaz & Khalili, 2014). The purpose of this article was to establish the correlation between transformational, transactional leadership and rational decision in services providing organizations based on moderating role of knowledge management processes. Secondly, this article evaluated the effect of transformational leadership and knowledge management processes on the predication of rational decision-making.

How to apply rational decision-making process to investment strategies

There is no doubt that decision making is vital undertaking in the managerial activity. Decision making in an organization is general the role of leaders and it involves addressing issues ranging from general routine life in job environment to strategic choices that shapes the progress of the organization(Riaz & Khalili, 2014). It is also imperative to note that the nature of a decision taken by the leadership do not only determine his/her success, but it also determines the direction and the destiny of the organization. According to this article, studies have established that decision making choice differ from individual to individual. However, there is strong evidence suggesting that transformational and transactional leaders make rational decisions. Further, this article indicated that transformational leaders tend to approach decision making with aim of providing leaders the knowledge vital………………………………………………rational decision-making in investment decisions.…………………………………………………

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Role of costs and prices in decision-making

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Post date March 11, 2021
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Elasticity
This unit examined the role of costs and prices in decision-making. For this assignment, you will answer a series of questions in the form of an essay. Support your answers with research from peer-reviewed journal articles (2015-2020 references/sources if possible).
Research elasticity information for two particular goods: one with elastic demand and one with inelastic demand. Using elasticity information you gather, predict changes in demand. The United States Department of Agriculture website has a good resource to help with this.
Describe how marginal analysis, by avoiding sunk costs, leads to better pricing decisions.
Explain the importance of opportunity costs to decision-making and how opportunity costs lead to a trade.
Evaluate how better business decisions can benefit not just the producer but the consumer and society as a whole. In your evaluation, contrast the deontology and consequentialism approaches to ethics.
Your essay must be at least three pages in length (not counting the title and references pages) and include at least four peer-reviewed resources. Adhere to APA Style when writing your essay, including citations and references for sources used. Be sure to include an introduction. Please note that no abstract is needed. Use costs and prices in decision-making

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costs and prices in decision-making

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Introduction

The issue of consumer demand is measured as an elasticity that is also a relative measure through the provision of useful means of comparison across different aspects of quantities. Price elasticity of demand will also look at the measure of the responsiveness of demand that looks at the change in prices. For example, the ‘own-price elasticity of demand’ calls for a measure regarding the responsiveness of demand for a product when it comes to changes in the price of the related product(Sabatelli, 2016). Also, the percentage change concerning the quantity of a product leads from a 1 percent change regarding its price. For example, when looking at the own-price elasticity of – 0.58 will mean that a 1 percent increase based on the price of apples will decrease the demand for apples by 0.58 percent. A food item is also said to be price inelastic when it is not responsive to price or when its price is higher than -1.0. Also, the food will be said to be price elastic whenthe item is responsive to price, or when its price elasticity will be less than -1.0(Sabatelli, 2016). Also ‘cross-price elasticity of demand’ looks at the measure of the responsiveness of demand when looking at on product concerning a change in the price of a different or competing product. This means that the percent change concerning the quantity of product as a result of a 1 percent change in the price ofanother product is based on the sign of cross-price elasticity which is also an indication of the product, complements, or substitutes (Andreyeva et al., 2010).

Beef and Pork Elasticity in the United States In the United States, as the prices of beef and pork approached a record high level back in 2014, most analysts were surprised by consumer response. Due to the recent occurrence of the price swings, it calls for the traditional approach regarding the analysis of demand which is based on the historical series of data that could be less useful than is the case typically(Mintert et al., 2001). Based on non-linear demands for meat products, the demand is being more inelastic at higher prices. The ground beef, steak, and pork chop demands are going to be more sensitive regarding changes in the chicken breast prices and not the opposite. Also, the cross-price elasticity between the disaggregate meat based products will go low as the prices continue to rise (Fibich, 2005). The other aspect to look at is the income of consumers which will significantly affect the interrelationships of demand. Consumers with higher income are likely to choose steak and chicken breast but will be less likely to choose beef or deli ham than a lower-income customer…………………………………………………………………………………………………

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Decision Making Process: Consumer needs and wants are what drive marketers

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Post date March 9, 2021
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Decision-making process for Consumer needs and wants(i.e., high involvement versus low involvement)
Motivation and values

Part 1, Decision Making Process: Consumer needs and wants are what drive marketers to succeed in selling their products or services through a variety of methods. Describe the process from consumer need through purchase behavior. Then, discuss how each of the following items impacts the process of decision-making. For each item, support your discussion with a personal example of purchasing a product or service.

The type of decision in the decision-making process (i.e., high involvement versus low involvement)
Motivation and values
The power of attitudes
The type of message
Issues related to purchase and post-purchase activities
The family and culture
Part 2, Cultures and Marketing: Our behavior as consumers is dramatically influenced by our culture. Refer back to the Marketing Pitfalls section 14.6 (Chapter 14).
Find a similar example of an unsuccessful market entry by a global product and provide the details in your paper.
Describe the reason why it was a failure as related to consumer behavior, culture, and/or subculture.
Explain how you would more effectively market the global product in that country.
The Final Project Paper:
Must be eight to ten double-spaced pages in length (not including title and references pages and formatted according to APA style as outlined in the Ashford Writing Centerâ€™s APA Style resource
(Links to an external site.)
.
Must include a separate title page with the following:
Title of paper
Studentâ€™s name
Course name and number
Instructorâ€™s name
Date submitted
Must use at least four scholarly sources in addition to the course text.
The Scholarly, Peer Reviewed, and Other Credible Sources
(Links to an external site.)
table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.
Must document any information used from sources in APA style as outlined in the Ashford Writing Centerâ€™s Citing Within Your Paper guide
(Links to an external site. Consumer needs and wants)
.
Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center. See the Formatting Your References List
(Links to an external site.)
resource in the Ashford Writing Center for specifications.
Carefully review the Grading Rubric
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for the criteria that will be used to evaluate your assignment.
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Consumer Decision Making Process: Consumer needs and wants

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Consumer Decision Making Process

Marketers can develop effective marketing strategies if they have a good understanding of the consumer though processes. Although it may not be easy to comprehend, consumers have a decision processes that they employ while making a purchase decision. The development of a good understanding of the process is critical for marketers. The understanding is important in developing a structured thinking and a better understanding of the consumer behavior. The consumer decision process model describes the steps that a consumer or purchaser follows while making their purchase decision.

Part 1: The Decision Making Process

The purchasing process has been shown to be similar to process of problem solving. According to Verma (2008) customers purchase a product or service when they have a need that they need to satisfy. The purchasing decision has been shown to follow a series of steps, which has been referred as the consumer decision-process model. The consumer decision process consists of the need recognition, information search, pre-purchase evaluation, purchase, consumption, and post-purchase evaluation. The need recognition occurs where the consumer initiates the decision to make a purchase. This could occur due to perceived discrepancy between the current and desired states. For example, a desire to buy new mobile device in order to access more content that cannot be accessed by an old model. The recognition of the need is followed by the search for information about the available alternatives. According to Hoffman & Bateson (2010) the search can be internal or external. The collected information can be obtained from personal and non-personal…

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Six Basic Steps to Decision Making

Post author By Smith Johnson
Post date February 16, 2021
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Research, analyze and interpret the six basic steps to organizational decision making and describe each one and its importance.
The requirements below must be met for your paper to be accepted and graded:
Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style, see example below. Use font size 12 and 1” margins. Include cover page and reference page. At least 80% of your paper must be original content/writing. No more than 20% of your content/information may come from references. Use at least three references from outside the course material, one reference must be from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement. Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

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Business: Six Basic Steps to Decision Making

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Organizational Decision Making

Organizational decision-making is a process that occurs daily in organization, which employees go throughout their work experiences. No matter the importance that a particular decision being made possess, it will influence negatively or positively on the organization and its customers (Daft & Marcic, 2010). The paper will analyze and interpret the six steps of the organizational decision making, as well as giving the significance of each step.

The Six Steps to Organizational Decision Making According to (Daft, Kndrick, Vershinina, & Kendrick, 2010, 2010, p. 322), six major steps are necessary for an effective decision to be made. The authors point that the first step in the managerial decision making process is the definition…………………………………….……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

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Organization Project – 2: Managerial Decision Making

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Post date January 29, 2021
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Research Apple Inc. Find a minimum of one library source, which will support your thesis in this assignment. Review your assigned weekly lecture and text reading. Select from this reading 3-5 key concepts, which will also support your thesis. In a two to three page paper, address the questions below. Your paper should follow APA format including a title and reference page. The two to three page paper length requirement does NOT include the title page and reference page. Refer to your classroom area titled South University Policies and Guideline. Using APA Standards in Your Coursework to ensure you are following the correct format.

Describe some of the key decisions its management has faced within the past year or two. Identify an ethical issue the organization either faces or has faced in the past. If it has not been resolved, provide an analysis of how the issue should be addressed. If it has been resolved, critique how the organization resolved this issue based on the materials you have reviewed on ethical decision making.

Submit your report to the W2: Assignment 2 Dropbox by Tuesday, July 7, 2015.
Assignment 2 Grading Criteria
Maximum Points
Submitted a two to three page research paper that included one library source and provided 3-5 key course concepts to support work.
10
Described some of the key decisions its management has faced within the past year or two.
15
Identified an ethical issue the organization either faces or has faced in the past.
15
Wrote in a clear, concise, and organized manner: demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation.
10
Total:
50

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Management: Managerial Decision Making

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July 6^th 2015.

Apple Inc. Managerial and Ethical Decisions

Introduction

The Apple Inc. company is one of the most successful electronics companies that manufacture mobile devices and computers (Laham & Huth, 2011). Co-founded by Steve Jobs and Steve Wozniak, the company has seen its share price rise from just 3.30 US dollars in 1997 to well above 339 US dollars by 2011. Such a remarkable turnaround in the company’s performance has been credited to key managerial decisions that completely changed the operations in the company having initially faced many challenges. However, there remain major issues in the company’s ethical perspectives that need to be addressed.

Major Managerial Decisions by Apple Inc. in the Past Two Years

The Apple Inc. has been struggling with dwindling sales of its products in the market in the year 2012 (Yglesias, 2013). Most of the causes of the loss in sales are stiff competition from other major application software developers like Samsung and the changes in the company’s marketing model. In a move to reverse the sales trends, Apple Incl. decided to recall its old CEO, a bold managerial decision. In 2013, the company’s new CEO had introduced the discounts that had been removed and positive sales trends were achieved. Only few companies would go back to their former employers in order to turn around company’s performance as the case of Apple Inc. marketing. The hiring of Apple’s new CEO Tim Cook brought up many changes and decisions concerning the company’s operations. The business catastrophe brought by Ron Johnson at J.C. Penney, meant the new CEO had to make a decision in order to save the company’s largest outlet (Yglesias, 2013). Mr. Cook hired John Browett, CEO of TESCO………………..

…………………………Managerial Decision Making………………………………………………………………………….

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Capital budgeting , Net Present Value, and other decision tools

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Post date January 25, 2021
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Essay (20 % of course grade)
Students should select one of the topics from the list below (or an alternate topic preapproved by the instructor. The essay is due in the individual\’s Assignments Folder as indicated in the Course Capital budgeting , Net Present Value, and other decision tools

Capital budgeting , Net Present Value, and other decision tools

Guide/Schedule.
The essay should demonstrate a student\’s ability to integrate and synthesize course concepts with selected readings to communicate his/her understanding of financial management concepts their application in organizations. The essay should also demonstrate a student\’s ability to communicate as a manager. This includes proper writing style, organization, grammar, and spelling, as well as integration of course-related material. The writing style must follow the Publication Manual of the American Psychological Association , 5 th edition. Citations for online sources should include the online address (URL) and access date as well as the citation for the specific reference.
Research for the paper may be conducted online using the UMUC online library as the primary source. Do not use abstracts, use full-text articles. Publications that may be relevant for the topics listed below include: Strategic Finance, The Journal of Business Finance and Accounting, CFO Magazine, Nonprofit World, Harvard Business Review, or other accounting and financial journals.
The paper should:
•    Be based on your reading and research relevant to the topic.
•    Be 7 – 10 double-spaced pages, plus appendices, exhibits, and references.
•    Include a one-page Executive Summary immediately following the title page that includes a statement of the major issue(s) and your conclusions and specific recommendations. The content of an Executive Summary is similar to an abstract.
•    Properly cite reference sources: these may include course material, information from magazines, journals, and online sources. All reference sources must have a publication date within the last three years. Students who wish to use an older source publication should contact the instructor with the request and reason.
Essay Topic List
1.    Capital Budgeting, Net Present Value, and other Decision Tools – Write an essay that analyzes the pros and cons of the commonly used measures ( NPV, IRR, PI, MIRR, DPB) and come to a conclusion based on the literature that you surveyed as to which methods are theoretically correct and those popular. Emphasize real-world practices of capital budgeting methods, including project approval processes. Synthesize the discussions in published research or survey articles (Text Material: Parrino – Chapter 10).

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Finance: Capital Budgeting, Net Present Value and Other Decision Tools

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Abstract

The main objective for existence of any organization is to make returns on its investments. However, good investment depends wholly on the success of the decisions made. A wrong decision, especially, which involves large capital outlay, for instance in capital investment, can result in major losses or total closure of firms. In order to make decisions that are in line with short term and long-term company objectives, managers use capital budgeting tools when appraising their investments.

The choice of a capital budgeting tool depends on a number of factors, which includes the amount of capital, its simplicity and ability of the tool to take care of the unforeseeable future risks associated. Many capital budgeting techniques that can be used by managers to appraise future investment are available. The most common budgeting investment appraisal techniques that this paper analyzes are the net present value, internal rate of return, modified internal rate of return, profitability index and discounted payback.

The analysis of the above budgeting techniques showed their weaknesses and the varying degree of applicability. The paper established that the profitability index was the widely used method of investment appraisal owing to its strengths, which include its ability to take care of unforeseeable future risks and time value for money. However, the other methods remain in use owing to certain factors such as the amount of capital investment.

Introduction

The main objective of any organization is to make profits and give good returns to their shareholders. However, the performance of any organization largely depends on the decisions that management make. Whereas some decisions might be easy to make, some decisions that involve projects that demand massive capital investment need to be assessed in a professional way.

Once a project has been identified, a decision has to be made, whether to invest in it or not. Such financial decisions are often done using financial tools such as payback period, profitability index, internal rate of return, modified internal rate of return, discounted payback period and net present value. However, these financial decision tools have their pros and cons, which limit the use of some of the tools. The following are the pros and cons of the financial decision making tools and the frequency of their use.

Capital Budgeting Decision Tools

Capital budgeting refers to a decision making process where a firm evaluates the potential long-term investments it needs to invest (Zenwealth.com, 2015). Normally, it is expected that the long-term projects are able to generate cash flows over some time. The analysis of the expected cash flows from the future project will determine if it will be accepted or rejected. The decisions to reject or accept can be analyzed using the following capital budgeting decision tools.

Net Present Value (NPV)
Internal Rate of Return (IRR)
Profitability Index (PI)
Modified Internal Rate of Return (MIRR)
Discounted Payback (DPB)

Net Present Value (NPV)

When projects have different cash flows, different service lives and varying costs, it is imperative that the time present value of money must be put into consideration (Cliffsnotes.com, 2015). The net present value is used to analyze such projects. Net present value is a discounted cash flow technique that utilizes the amount as well as the timing of cash flows in any future project. In order to employ this technique, it is important to know the expected internal rate of return of the company, the cash flows and the project cash out flows. The required rate of return of the company is used in calculation of NPV as a discount rate. NPV is evaluated using the formula:

NPV = Net Present Value of Inflows – Net Present Value of Outflows

Pros and Cons of NPV

Pros

The net present value is a commonly used and effective method of appraising investments. Its effectiveness comes from the fact that the method employs discounted cash flow analysis where the discounted rate helps to take care of future uncertainty associated with future cash flows (Investopedia, 2012). The discounted rate is an imperative part of net present value since it represents various forms of the company undertaking investment decisions. For instance, it may represent the cost of using company internal funds or cost of borrowing capital for investments (Extension.iastate.edu, 2015).

Cons

Although net present value is a commonly used financial appraisal tool, it is not without its drawbacks. The major drawback of this method comes from the lack of computation of the rate of return. The ability to reject or accept a project is purely based on the calculation of the present value. This draw back has led many analysts in preferring adjusted rate of return instead of NPV (Kimmel, Weygandt & Kieso, 2011).

Internal Rate of Return

While it employs the concept of present value, internal rate of return evaluates the interest that a future project is likely to accrue at present value of zero (Schmidt, 2015). At the present value of zero, the value of inflows is the same as the value of the proposed investment. In order to evaluate IRR, an iteration process is used where the NPV = 0. The formula for calculating IRR is given as 0 = P₀ + P₁/(1+IRR) + P₂/(1+IRR)₂ + P₃/(1+IRR)₃ + . . . +P_n/(1+IRR)_n (Investinganswers.com, 2015). Where n= the period in which the cash flows occur, P= the respective cash flows.

IRR is best suited in appraisal of projects such as private equity investments and venture capital that have multiple investments and a single cash flow at the end of the investment (Investinganswers.com, 2015). Whether a company can use IRR or not is based on its advantages and disadvantages. However, a project should only be accepted if the calculated internal rate of return matches the target set by the management (Accountingexplained.com, 2015).

Pros

The use of IRR makes it possible for investment managers to rank the feasibility of projects based on the internal rates of returns rather than their present value. The use of internal rate of return makes it easy to measure the feasibility of projects; the formula allows the management to compare one project with the other (Small Business – Chron.com, 2015).

Cons

One major disadvantage of use of internal rate of return is the reinvestment assumptions. The evaluation of project based on IRR makes an infeasible assumption that immediate cash flows are reinvested at the IRR rate, which does not happen always. In addition, the use of IRR is only possible with projects that have initial cash flows and subsequent cash flows. The other major shortcoming of IRR is its inability to measure the size of investment in addition to its likelihood to favor huge investments (Investinganswers.com, 2015). For instance, IRR is likely to accept 1$ with returns of 5$ while rejecting a similar investment with returns of 2$. Finally, IRR does not consider the cost of capital and this makes it hard for managers to predict projects with varying durations.

Profitability Index

Profitability index, also termed as cost-benefit ratio is a capital budgeting tool that uses discounted technique in evaluating the viability of an investment. According to (Borad & author, 2015), profitability index is defined as the ratio of discounted cash inflows to the cash out flows of an investment. (Borad & author, 2015) further points out that, since the cash inflows serve as benefits of the investment and the initial investment serve as cost, profitability index is the reason it is sometimes termed as cost-benefit ratio. Profitability index can be evaluated using the formula below:

Adapted from (Borad & author, 2015)

The profitability index (PI) ascertains the monetary cost of a project and compares it to the expected benefits in monetary terms. In computing the present value of the benefits of an investment, compared to its cost, the project is approved if the value of PI is greater than one, otherwise it is rejected (Wilkinson, 2013). When the value of PI is equal to 1, it means the expected future returns will be equal to the cost of investment, and no profits shall be made. However, the expected future returns on an investment are higher than the cost of investment if the value of PI is greater than 1 and that is why the projected is accepted. On the other hand, a negative PI signifies an investment that falls short of expected results and the one that is likely to lead to a loss (Investments, 2015). The profitability index has its own advantages and disadvantages.

Pros and Cons of PI

Pros

The PI is much easier to understand and offers more communication compared to net present value. The other advantage of this capital decision technique is that it is an imperative way of evaluating projects especially when funding is limited. The use of PI comes in handy in such a circumstance that warrants capital rationing. PI is simple to calculate besides it provides information regarding liquidity of a firm and the risk of the future cash flows (Wilkinson, 2013). Finally, PI takes care of all future cash flows of an investment and provides an assessment on the time money value of a project, showing whether an investment increases the value of a firm or not (Peterson-Drake, 2015).

Cons

The main demerit of profitability index is the difficulty of using the interest/discounting rate. In addition, the use of profitability index needs an estimate of the cost of capital and the method may not be efficient if used to evaluate multiple mutually exclusive investments (Peterson-Drake, 2015).

Modified Internal Rate of Return

The major assumption of the internal rate of return is that the cash flows shall be reinvested at the internal rate of return. However, this may not be the case since the reinvestment rate may vary than the internal rate of return, thus skewing the results. The modified internal rate of return is an improvement of the internal rate of return, which was devised in order to address the shortcomings of the internal rate of return method.

The use of internal rate of return involves three basic steps that when utilized well, it shall provide the most effective capital budgeting decisions. The first step is discounting of the funds committed to a project to the present in such a rate that fairly reflects the investment risk. Secondly, the cash flows are compounded forward with the exclusion of the investment and within the investment chosen period. Finally, the internal rate of return is evaluated. It is worth to note that the re-investment rate represents the future opportunities, where risks equal the investment risks of the future project.

Pros and Cons of Modified Internal Rate of Return

Pros

There are many reasons why project analysis may opt to employ MIRR rather than IRR. While IRR takes into consideration investment impacts and changing reinvestment rates, MIRR allows both the reinvestment rate and finance to be associated with inflows and cash flows during project evaluation (Icpas.org, 2015). Through MIRR, a company is able to know whether the investment is increasing the company value or not, unlike NPV or IRR.

While NPV and IRR have significant drawbacks in form of timing, ranking and problems of size, MIRR provides a way of assessing the risks associated with future inflows, cash flows and time value for money. In summary, MIRR gives a much better realistic view on the reinvestment of free cash flows.

Cons

Just like other capital decision tools, MIRR has its own disadvantages. When the method is used in mutually exclusive projects, it may lead to incorrect decisions (Borad & author, 2015). Most managers do are hesitant in using cost of capital and financing rate, which may skew MIRR decisions.

Discounted Payback (DPB)

The discounted payback method is an investment appraisal tool used by financial mangers to determine how quickly the cash flows of the investment can meet the cost of capital (Peavler, 2015). By discounting each cash flow, the method takes into consideration the time value for money. The major difference between the discounted payback and the payback period method is that DPB uses discounted cash flows as the interest rates and the particular year in which the cash flow occurs. This method has its pros and cons just like any other capital decision tool.

Pros and Cons of DPB

Pros

The major advantages of DPB are that is gives an estimate on the time it can take an investment to realize the initial capital. DPB also since it uses discounted cash flow technique, this method gives a better estimate of the time it can take an investment to recover initial investment when compared to payback method.

Cons

The efficiency of discounted payback method is reduced in the circumstance that the cash flows are overlooked. The other drawback of this method is that it needs an estimate of the cost of capital in order to evaluate the payback in addition to exudin…………………………………………………………………………………………………….

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