It\'s your first day as the CFO for a very large firm that considers hundreds of
ID: 2656393 • Letter: I
Question
It's your first day as the CFO for a very large firm that considers hundreds of potential projects every year. Your new boss (the CEO) wants to know how you plan evaluate those projects. Will you use sensitivity analysis? Scenario analysis? Some other method? Will you utilize nonfinancial people to help with the analysis? If so, whom and why? Craft a memo to the CEO (Dr. Stephanie Yates) to answer these questions. Provide as much detail as possible to assure the boss that you know what you're doing!Explanation / Answer
Being the CFO of a very large firm, it is quite a responsiblity to identify the project which will provide beneficial returns to the company in the long run.
I would rather go for Capital Budgeting technique to find out the feasibility of the projects. As every project provide returns over its life time and being the CFO, it is my responsiblity to ensure that those cash flows exceed the initial investment. I would calculate current values of future cash flows by using appropriate cost of capital and get to know the Net Present Value ( Present Value of Future Cash Flows - Initial Investment ). If NPV is positive, I would undertake those projects. If they are negative, I would not consider them. In this way, I would go about choosing projects for the company.
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