According to the Case Scenario below; What is the main point of the case? What i

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According to the Case Scenario below; What is the main point of the case? What is the problem addressed in this case? What was the supporting ideas for the conclusion reached in this case? What was the conclusion? What is your opinion? Do you agree or disagree? Can you explain? A Case Scenario: Capital budgeting practices in Spain and Brazil One of the critical steps in budgets preparation is the development and analysis of capital budgeting. Capital budgeting is the process of making planning decisions, and analysis of opportunities for long-term investments in assets to produce benefits for more than one year. The decisions made during the process of development and evaluation of capital budgeting determine the future growth and productivity of the company, and it helps to achieve the highest profitability. There is a number of a technique commonly used to evaluate capital budgeting projects such as payback, accounting rate of return, net present value and internal rate of return, and profitability index. What happens is that decision-makers often have to choose among several options, based on various criteria, without a popular choice for all requirements. This is because the decision maker must not only evaluate each opportunity and each standard but also weigh the relative importance of each criterion before making the final decision. Discussions about the best method to be used in capital budgeting have been long and intensive. Differences between NPV and IRR seem to cause permanent problems. From the perspective of the comparative evaluation when examining the companies in Brazil and Spain, Brazil is an emerging country, even though with poor infrastructure and inadequate port systems in many aspects. On the other hand, Spain is a typical example of a developed country, a member of the European community, with efficient port services, ranking fifth in Europe. On the grounds of ports in these two countries, many activities performed affect the goods distribution process, the environment, and society directly, with an impact on the international trade and zones of influence Furthermore, efficient ports and sea transportation services, as well as robust intermodal systems, are crucial for the growth and the economic and social development of a country. For ports to improve the efficiency of their operations, it is imperative to invest their resources appropriately in projects that generate sustained growth in the medium and long-term. So, it is important to examine which capital budgeting practices are used in the Brazilian port companies, compared to the Spanish ones from the comparative perspective A core feature of any investment assessment is the use of discounted cash flow (DCF), which takes into account the time value of money and theoretically is considered the most appropriate method, including at least four different discount models such as net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and the profitability index (PI) NPV is a favorite technique for investment decisions because it is a financial measure that determines the time value of money invested in a business. IRR is a percentage

Explanation / Answer

1. The main point of the case is to examine and analyse how the use of capital budgeting techniques is different in Spain and Brazil owing to the availablility of various information including interest rates, cashflow estimation etc. The case also explains how the different use of capital budgeting technique is providing them with different ideas on investment which is ultimately leading to prosperity for one only.

2. The problem addressed in the case is primarily how the lack of reliable information is affecting the investment decision for Brazil. Brazil ans Spain are two juxtaposed countries with one shining in terms of their ports and the other still developing. The main reason behind this is the use of different investments which is mainly varied owing to the unavailability of reliable information.

3. The supporting ideas for the conclusions reached in this case are the relative position of the companies in both the countries, various comparitive reports on the ports of both these countries, socio-economic condition of the countries and the pace of progress of both the countries.

4. The conclusion was focused on identifying criterias which the company should use and follow while evaluating investment oppurtunity.

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