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Net Present Value

Net Present Value
Understanding Net Present Value One method of deciding or not a firm should accept an investment project is to determine the net present value of the project. The net present value (NPV) of a project is equal to the present value of the expected stream of net cash flows from the project, discounted at the firm’s cost of capital, minus the initial cost of the project. The value of the firm will increase if the NPV of the project is positive and decline if the NPV is negative. Thus, the firm should undertake the project if the net present value is positive and reject proposals whose values are negative. This method is considered the best, as it takes into account, the initial investment, and cost of capital and cash inflow over a period. Estimation of Future Cash Flow: One of the most important and difficult aspects of capital budgeting is the estimation of the net cash flow from the project. It is the difference between cash receipts and cash payments over the life of a project. Projected cash flow statement is an important criterion for banks to decide on sanctioning medium and long-term loans to prospective clients. Since cash receipts and expenditures occur in the future, a great deal of uncertainty is involved in their estimation. Some general guidelines are to be followed while estimating cash flows. First; cash flows should be measured on an incremental basis. That is, measurement of the firm’s cash flows with and without the project must be ascertained. Any increase in expenditure or reduction in the receipts of other divisions of the firm resulting from the adoption of a given project must be considered. Effect of Depreciation: Second thing is that, net cash inflow must be estimated on an after-tax basis, using the firm’s marginal tax rate.Third, as a non-cash expense, depreciation affects the firm’s cash flow only through its effect on taxes. The initial investment to add a new product line may include the cost of purchasing and installing new equipment, reorganizing the firm’s production process, providing additional working capital for inventory and accounts receivable and so on. The monetary flows generated by this kind of investment include, the incremental sales revenue form the project, salvage value of the equipment at the end of its economic life, if any and recovery of working capital at the end of the project. The outflow will be in the form of taxes, fixed costs and incremental variable costs. Internal Rate of Return or IRR: Another method of determining the acceptance rate of a project proposal is internal rate of return method (IRR).This is nothing but the discount rate that equates the present value of the net cash flow from the project to the initial cost of the project. The firm should undertake a project if the IRR on the project exceeds or is equal to the marginal cost of capital. Capital Rationing and Pay Back Period: More techniques are available for evaluating the feasibility of investment proposals, like, capital rationing, profitability index, pay back period and others. It is always a good thing to analyze the rate of return on investment before the start of the project. If it happens to be satisfactory, then the firm can take a step forward to finalize the proposal. The cost of capital climbs up when the investment return declines, and the firm is subjected to undue pressures of mounting interest rates and capital depletions....
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Smart Objectives for Success

Smart Objectives for Success
SMART OBJCTIVES FOR SUCCESS An objective describes something which has to be accomplished and defines what organizations, functions, departments, teams and individuals are expected to achieve. Objectives may be operational or developmental. When the contribution is oriented towards the accomplishment of corporate objectives, in the light of the organization’s mission, core values and strategic plans, it is termed as operational; personal or learning objectives that involve the improvement of knowledge, skills and performance of individuals is termed as developmental. Objectives must be SMART: S-scientific M-motivating A-achievable R-realistic T-time bound Objectives that are mostly confined to the near future may be termed-short term objectives, which are accomplished in the stipulated time duration. Say, for example, 1000 units of pet bottles have to be produced in a week’s time. If the firm is focused on the overall production plan for the forthcoming year, then it is termed as long term objective. In a production environment, a firm has to initially go for an aggregate plan, where the production capacity of the plant is determined to make the project feasible. The firm has to make doubly sure, whether it is resourceful in terms of physical, financial and human aspects. The work centers are allotted with jobs in a mock trial to check man versus machine co-ordination and compatibility. Proper Planning: Objectives are achieved only when there is proper planning. The top management must take the pains to clearly explain the objectives to all the employees across different levels of organization to facilitate smooth functioning. When the employees understand what is expected of them, the performance gets oriented towards accomplishing the objectives; the employees get proper direction and focus. Think of this, what will happen to the sales volume, if the marketing manager does not properly educate his team about the targets to be achieved for that quarter? Definitely there will be a dip in the sales owing to the lethargic and irresponsible attitude of the manager. Ultimately, the organization stands to suffer a loss in terms of time and cost of recruiting a new person to head the marketing department. Right Person for the Right Job: Organizations have to be meticulous while choosing people for the post of managers. The chosen persons must be able to identify themselves with the organization and its objectives, so that they could be a source of inspiration for people down the line. Right people for the right job, at the right place and right time is the success mantra. Objectives have to be periodically revised in the light of changing economic, political and technological developments. If not the objectives might become obsolete and in due course you will get stranded amidst the roaring competition.  The process of business management aims at managing people and other resources to make a modest profit. How to achieve success in an open market? By clearly setting objectives that serve as tools of motivation and persuasion, a firm can evolve and contribute strategic inputs that make the objectives realistic and...
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Reinforcers and Behavior Changes

Reinforcers and Behavior Changes
REINFORCERS AND BEHAVIOR CHANGES Reinforcers induce and enhance the association between the cue and the expectancy. This leads to increased performance levels and positive attitude development. This is an effective and efficient strategy that has been proved to be successful. Reinforcement is inevitable for learning process and in a dynamic corporate business environment, unlearning the old things and learning and adapting oneself to satisfy the needs of the changing environmental and economic factors is the critical success factor that serves as the backbone of the success of the company. Significance of Learning: Learning is not the only attribute that gets enhanced by reinforcers; as a result there is a repetition of desirable behavior that helps in maintaining the consistency, cordiality and climate of the organization. Reinforces increase the strength of response leading to desirable or undesirable consequences depending upon the kind of reinforcer, which might be a reward or a punishment. Either way it elicits response that gets strengthened in course of time. Mindset of People: The management side that is the deciding authority has to come to clear terms with the kind of treatment applicable on specific situations; say for instance when there is a need to complete a project in the stipulated time or achieve quantifiable targets which may prove very challenging or increase the production capacity in order to retain a major market share. Whatever be the case, the morale of the workers down the line, executives who coordinate the process, the managers who manage and report has to be maintained in the highest order. The mind set of the people working for you is very important as it encompasses the quality of work done, commitment to duty and determination to reach the target on time. Rewards: Rewards always make people happy and are found to be positively reinforcing. If you feel that monetary rewards are always a better stimulus, you are wrong. Money is always considered to be a reward; to consider it as a reinforcer cannot be neglected but at the same time it definitely is not a positive reinforcer.Feedback on performance is rated high on the reinforcer scale which takes you to the next level as a performer. Modern organizations have understood the system’s anomaly that gives undue importance to the huge amount of data that speaks volumes about people and their merits and achievements. Is it really enough to know things about people? People expect feedback about their performance and people with some degree of achievement definitely have an intense desire to know how they are doing? The more specific your feedback is, better the impact and greater the delay between the performance and feedback, the less the effect. Work Environment: The work environment itself can serve as a very good positive reinforcer provided there is freedom of expression, liberty to participate and an open door policy adopted by the managers and superiors. The top level management must take utmost care to design the reward system in such a way that it warrants fairness and equity. Employees are motivated to go for self appraisals with goal setting that is the biggest reinforcer of all times. Recognition: Recognition, rewards and praise tend to boost the ego of individuals which you can work it up to your advantage. Punishment is one of the most used and convenient but least understood and badly administered aspect of learning and reinforcing. Punishment equally alters the behavior of your subordinates which becomes more complex in course of time. Positively dealing with your subordinates by giving them one more chance, of course with a warning might serve the purpose. If punishments modify the behavior of a person and make...
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Running a Restaurant

Running a Restaurant
The Viability of Running a Restaurant A project can be made into a roaring success provided you have made your in-depth analysis and research to understand the nuances of the industry. Before plunging into the market it is better to have the data ready with you. How prepared you are to run the business is not the question; how well prepared are you to face the hurdles and challenges that come your way is all that matters. Only if you withstand the rough weather may you proceed to grow and then expand. Industry Insights Restaurant industry is one such area where many people try to set their foot daydreaming of immediate success. Unfortunately the scenario doesn’t warrant instant success. Any business that has a slow and steady growth makes it to the top. Have you ever thought about the wherewithal needed to run the show! The industry looks very appealing and promising from outside but reality matters. The industry’s main focus is on supply chain management where your primary and ultimate focus revolves round your customers, who are your main focal point. Value Added Services Customer satisfaction should be your vision, mission, objective and goal. Of course you want to make profit. For what else in the world have you entered this business. But think about it, if you are not able to attract crowds, the effort is wasted. The quality The variety The appeal The presentation The treatment The ambience The refreshment, that is being offered to the customers should make them feel special and worth the value of money they are shelling out to have an evening out with their family or friends. Rising costs make people think twice before they decide on their choice of restaurant. Be sure about the class of people whom you want to cater the needs. Go for the plan accordingly and design your restaurant. Is Your Design Appealing? The design includes a sober atmosphere where the visitors can relax, mild lighting that is soothing to the eyes, mellifluous music that creates a magical effect and the choice of drapes and furnishings that add grandeur. The core concept of food industry is “customer satisfaction”. A company’s greatest strength is the quality of its professional management. You have to manage your human resource personnel, the waiters, waitresses, the chefs, the managers, billing clerks in such a way that their one and only motive is to give quick service and great service the first time and every time. Managing Your Financials Managing your financials is an absolute necessity. The initial investment has to be taken care of since you do not know the period it takes to establish yourself in the industry. How, big chain of restaurants is run successfully all over the world? First four or five years are particularly important to prove your credibility both to yourself and others. They do their complete market research wherein the customers’ preferences are jotted down and taken into consideration. High performing and high potential managers are put into place to run the show without a hitch. Well trained waiters are a big plus. Big companies diversify to invest their profits in ever prosperous areas like food industry, where people are constantly looking for new arrivals and the “brand image” that the big companies establish cannot be matched by small time players. Great service is the key factor that makes these big time players unique. Locational Advantage Locational advantage is the most important criterion for a restaurant industry. Sufficient space must be provided for parking and the access to the location be made a pleasurable experience. Don’t go for guidance from your local competitors or friends, they will...
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