Capital Budgeting Evaluation -

1.     How does a firm assess a new capital project?

2.     How would models of project evaluation such as NPV and IRR incorporate changes in economic outlook?

Capital Budgeting and Advertising -

This issue has two parts.

The article entitled, “New Brand Day,” (see http://www.cfo.com/article.cfm/3001802) describes how financial techniques used to evaluate investments are being applied to marketing and advertising expenditures. After reading this article, answer the following questions: 

1.     Describe the problems experienced by a finance person when attempting to evaluate advertising expenditures.

2. Describe how it is suggested that a company establish a value for its brand

Using Real Options for Risk Management Framework –

Real Options is a risk management technique that uses an options framework to evaluate investments in nonfinancial assets. Many firms are using options analysis to analyze risks involved in capital budgeting. While some firms have actually moved to full blown options analysis, other firms have used the techniques to modify more traditional analyses of risk. The concepts are particularly suited to assessing risks on projects that will have additional decision points over their duration. An article entitled, “Thinking in Real (Options) Time,” (see http://businessfinancemag.com/article/thinking-real-options-time-0301) describes how the concepts can be used to analyze risk.

After reading this article, address the following questions:

1. How does the real options approach differ from traditional NPV analysis with respect to analyzing a project over time?