Discussion Response 3.2
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Capital Investment Decisions
Response Guidelines Respond to at least two peers (see below). Your responses should be substantive and could involve one or more of the following:
o Debate the topic. o Ask a probing question. o Share an insight you gained from your peer's post. o Make a suggestion. o Share a personal experience related to the topic. o Expand on your peer's post.
The replies should be at least 50 words minimum
Student 1
Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. A sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs are excluded from future business decisions because the cost will be the same regardless of the outcome of a decision. Opportunity cost represents the benefits an individual, investor or business misses out on when choosing one alternative over another. Financial reports do not include opportunity cost, but business owners can use this information to make educated decisions when they have multiple options to choose from.
As an investor I think knowing the cash flow is very important. This can help determine if it is a worthy investment. Sunk costs, I think, is also important; this could show us what investment has already made within a business. Opportunity costs can help investors to make better decisions for a company, in hopes of a positive effect.
Student 2
Three concepts associated with making capital investment decisions include cash flows, sunk costs, and opportunity costs. Cash flows are used when considering a single project and also when valuing a company as a whole. It is important to understand the cash flow since it show money coming into and going out of a company or project.
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Sunk costs are costs that have already occurred. Since it has already happened, sunk costs do not change the decision to accept or reject a project (Ross, Westerfield, Jaffe & Jordan, 2018). Opportunity costs is important to consider since it may provide many different options for a company to make or lose money. The opportunity cost represents the benefits an individual, investor or business misses out on when choosing one alternative over another (Investopedia.com, 2018). Understanding the different concepts helps the investor know the health of the company. It also helps to create plans and projects for a business to expand and grow.
References:
Opportunity Costs. (n.d., 2018). Retrieved on July 26, 2018 from, https://www.investopedia.com
Ross, S.A., Westerfield, R. W., Jaffe, J.F., & Jordan, B.D. (2018). Cooperate finance: Core principles and applications (5thed.). New York, NY: McGraw- Hill.