It\'s your first day as the CFO for a very large firm that considers hundreds of
ID: 433322 • 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 to 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 to answer these questions. Provide as much detail as possible to assure the boss that you know what you're doing!
***No word limit or minimum. I just need help answering and understanding.
Explanation / Answer
MEMO
To :- CEO
From :- CFO
Date :- 29.07.2018
Subject :- Plan for evaluating potential projects for the firm
Dear Sir,
I understand that as a CFO it is important to plan the allocation of resources as per the goals and objectives of the business. It is imperative to evaluate the potential and performance of various projects through different measures to check if they can provide results as per the company growth plans and business goals.
The methods I will utilize for this purpose are Financial Ratio techniques like Return on Investment or Cash Flow methods like Payback period. Using ROI method, the expected returns are compared to the costs involved. Projects with high ROI should be prioritized. Payback Period can measure the time required for repaying the initial investment. Projects with short Payback periods are beneficial for the firm. Non financial people can help in the analysis to find out the scope of the projects in increasing firm's goodwill, strategy implications and other factors like feasibility and scale of the project.
Planning can be done to evaluate number of potential projects based on the projects undertaken by the firm in the past, experience gained from projects in progress or completed, financial evaluation techniques and strategic goals of the company.
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