Prior to a business or organization

Guided Response: Review your peer’s posts. Respond to at least two of your peers describing how these issues can be overcome by the tools discussed in this chapter and why (i.e., looking at IRR, NPV, cash flow).

a. Prior to a business or organization making a long term investment then must take a few things into consideration. First they must determine whether or not they have the capital in order to make that investment. This is done by performing a capital budget. After this step it would be a good idea for them to estimate the cash flows and assess the riskiness of the cash flow. Also the organization would have to determine the potential asset's rate of return. Another consideration they must take is the accounting rate of return and the payback method. A main consideration is deciding how long does the organization wants to have the money tied up in the long term investment. Investments are considered assets but decreases the available cash capital the organization may have. The most important thing is whether or not it is profitable and if they can afford and if so how long they want to keep the investment.

b. A few issues that a business faces when it comes to making decisions about any long-term investment would be the inflow and outflow of cash. How much capital do they need to make this investment and how long before they see a profit on their investment. Each of these things have an impact on a business when trying to figure out if it is possible to make changes that can help a business grow and to have success. There are four different areas that we read about this week that can help with trying to figure this out. Net present value,Internal rate of return, Accounting rate of return, and the last one is Payback. A manager should not focus on one single method in making a decision they should look over every aspect and make a sound judgement about any investment that is made in a business.