Week 10 DQ1
With the current U.S. economy in a weakened state, many companies are reluctant to implement any capital improvements or capital expenditures in fear of the economic uncertainty that exists that may negatively impact the cashflow of the organization. Assess the impact of this behavior on productivity, cost efficiency, diversification of assets, or impact to future cashflows that may emerge if companies continue this mindset indicating the long-term risk to profitability. Provide an example or scenario to support your response.
In this economic downturn, it is seldom for company to find funds to finance their long term investments due to the uncertainty on the capital market. Banks are very reluctant to finance to company to undertake their businesses, or sometimes when they want to finance, the conditions they impose are very hard so then the costs of funding of the companies skyrocket. Consequently this reduces the profitability of the companies. To fight again the crisis, the government has put in place more regulations where companies need to complain with. That is the example of Basel 2 or 3, in term of risk management, require for each company to put 6% of its capital as a reserve to be used in case the company faces a financial distress in the long run. This money could have be used to financial some long term investment where the company could have gained some return on investment, instead of using it to complain to some regulation rules.
Analyze the challenges that companies face in entering global markets. Identify the potential impact to capital budgets in making the decision to move into a global market.
In entering global markets, companies are seeking for capital to finance their investments. But there are a lot of challenges the companies need to come across when they move into the global market. The most important is the cost of capital which is the cost of funds that are supplied to the firm to undertake its investment projects....