200 words Discussion responses Finance in 24 hours

Respond to  two or more of your colleagues’ posts in one or more of the following ways: (100 words each Colleague)

· Ask a question about or provide an additional suggestion for the risks that your colleague’s organization might face if it engaged in the capital investment project.

· Provide an additional perspective on the level of risk associated with the project your colleague identified for their selected organization or on how willing/capable the organization might be in taking on and managing the risks your colleague identified.

· Offer an insight you gained from your colleague’s summary of the trade-offs between risks and returns and/or their recommendation for their selected organization to move or not move forward with the project.

Return to this Discussion in a few days to read the responses to your initial posting. Note what you have learned or any insights you have gained as a result of the comments your colleagues made.

1st Colleague to respond to:

The risks associated with a capital investment project for medical equipment for healthcare organizations such as hospitals, as discussed in Week 7, are listed below.

· An inadequate system of budget management caused by unethical conduct. 

· The lack of a clearly defined internal process management framework

· Insufficient communication channels within the organization.

The information provided by the managerial accountant assists in making crucial business decisions. Thus, if such information is fabricated due to the unethical behavior of the managerial accountant, terrible business decisions may result, leading the organization and its stakeholders to suffer negative finacial and legal consequences. Nevertheless, ethics involves more than doing what is legal; it encompasses doing what is morally right; on top of adhering to the law by providing guidance, it helps the managerial accountant and the other stakeholders build trust between them during the course of business interactions (Franklin et al., 2019).  Also, according to Mockaitis et al. (2012), to empower and increase a team’s productivity, one needs to understand the needs of each stakeholder. Besides, without clear communication, the acquisition team believes it has an adequate budget when it actually does not, resulting in budget overruns (Vianueva, 2011). Therefore, without an effective internal process management framework and a lack of appropriate communication feedback systems, an organization's productivity will be reduced, and growth will be hindered. As a result, all the risk factors mentioned above could result in an organization losing money on capital investments for a capital investment project for medical equipment for a healthcare organization like a hospital.

To take on and manage the risks mentioned above, the following steps can be taken by the organization mentioned above. 

According to Gardner et al. (2012), organizations should adopt a strategic and simple approach to creating a positive impact that lasts over time. For example, making decisions and acting accordingly to train the staff would make the implementation of good work ethics would lead to open communication and transparent reasons behind every action would help assess whether the issue is resolved or creates new issues. Besides, Fountaine et al. (2019) suggested that organizations must educate all stakeholders to ensure everyone is on the same page, and there must be sufficient resources for launching capital investment projects. Through effective communication, one could understand each other’s needs and minimize the risk that could occur from misalignment among the stakeholders. The finance department should invest adequate resources to begin the project and ensure that it meets schedules and budgets, as well as devote adequate time to planning and preparation since the early stages of a capital project are crucial to its success (Vianueva, 2011). Also, by doing so, the organization can define its internal processes more clearly, create more effective communication channels and prevent unethical conduct from damaging budgetary management.

In order to create value for their shareholders, companies must also weigh risk against return. On page 276 of Brigham and Houston's text (2022), panel b of Figure 8.1 suggests that when a company is investing in riskier projects, it should offer higher expected returns to its investors. Using this principle, high levels of uncertainty or risk are associated with high potential returns, while low levels of uncertainty or risk are associated with low potential returns. From my experience as a medical student, I have seen that healthcare providers need to have various medical equipment available to provide quality treatment to patients. The need for some equipment (such as autoclaves)  may not be financially lucrative but may be essential for delivering basic care. In contrast, other equipment may not be essential but is still heavily desired for providing better care. In Week 7, I discussed how urine analyzers in healthcare organizations like hospitals could provide accurate urine results and shorten laboratory turnaround times. Contrary to this, urodynamic equipment can diagnose urinary symptoms without referring patients to a urologist. Capital budgeting methods should be used by investors in order to evaluate investment opportunities and determine the risk involved in these types of investments. A relatively high return can be achieved by determining the level of risk an investor is willing to accept. Because of the facts above, due to the trade-off between the risks and possible returns, I recommend that the capital investment project for medical equipment be carried out.

 

References

Brigham E. F., & Houston, J. F. (2022). Risks and rates of return. In  Fundamentals of financial management (16th ed., pp. 273–308). Cengage Learning.

Fountaine, T., McCarthy, B., & Saleh, T. (2019, July). Building the AI-powered organization.  Harvard Business Review, 97(4), 62–73.

Franklin, M., Graybeal, P., & Cooper, D. (2019). Why it matters. In  Principles of accounting, volume 2: Managerial accounting. OpenStax.  https://openstax.org/books/principles-managerial-accounting/pages/11-why-it-matters

Gardner, B., Lally, P., & Wardle, J. (2012). Making health habitual: the psychology of 'habit-formation' and general practice.  The British journal of general practice: the journal of the Royal College of General Practitioners, 62(605), 664–666.  https://doi.org/10.3399/bjgp12X659466

Mockaitis, A. I., Rose, E. L., & Zettinig, P. (2012). The power of individual cultural values in global virtual teams.  International Journal of Cross-Cultural Management, 12(2), 193–210.  https://doi.org/10.1177/1470595812439868

Vianueva, D. (2011). Healthcare capital projects: how to avoid common problems: lack of resources and coordination are among the problems that can delay or increase costs for construction projects.  Healthcare Financial Management, 65(4), 86-91.

2nd Colleague to Respond to:

Hello class,

A plan for investing on long term assets is capital budget, which could be for a building and machinery. The risks are not being able to pay it on time as the agreement states and having cash flows. The risk is failure by the investee and having the management drop the investing projects. The capital risk is losing money from an investment of capital. The capital risk is having the assets move in an unfavorable manner.

Risk premium must be managed by the organization. The ones avoiding the risk are those investors in the risk premium. Risk projects is what the investors would be encouraged to invest on. When there I less risky projects then there are lower returns than those of risky projects. An example would be treasury bonds. Having a risk-free rate is having a low-risk investment rate like from government-backed securities. All and any risks will need to be managed through certainty. Forecasting techniques would need to be used for any appraising projects and future cashflows. Future events would not give the real picture of things.

The risk-return adjustment states that the possible return will increase with the increase in the risk. The principle will be the individuals that will associate low levels that would be ambiguous with the low possible returns. The high levels of the indecisiveness and the risk with high potential returns. If possible higher losses are accepted, then the investor is also accepting possible higher profits. Now, based on this I would say that the project should be moved forward by the organization.

 

References

 

Brigham E. F., & Houston, J. F. (2022). Time value of money. In Fundamentals of financial management (16th ed., pp. 151–185). Cengage Learning.

 

Kahraman, C., Ruan, D., & Tolga, E. (2002). Capital budgeting techniques using discounted fuzzy versus probabilistic cash flows. Information Sciences, 142(1-4), 57-76