Factoring in Capital budgeting Decisions & Assessing Dividend Policy
Question 1
Imagine you are a representative of management in Amazon and you must make a capital budgeting decision. The decision is to implement a new computer network system to decrease the time between customer order and delivery. The cost will be 10% of last year's profits. You are charged with describing the important considerations in the decision-making process to upper management. In your response, be sure to include the following:
• A description of the important factors, in addition to quantitative factors, that were considered when making this capital budgeting decision.
• An explanation of how these factors are significant to the company.
• A summary of how you will determine the criteria to rank capital budgeting decisions and whether some criteria are more important than others.
• A calculation of the proposed return on investment based on criteria you select and justification for that ROI.
Develop a 200 - 250 word explanation supporting your recommendations.
Tip: For help with reading an annual report access this handy guide from Money Chimp(http://www.moneychimp.com/articles/financials/fundamentals.htm)
Question 2
Using the annual report of Amazon and other sources such as a 10k or 10q's, discuss the dividend policy of your company.
Annual report http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual
Answer the following questions as part of your response:
• How would you describe your chosen company's dividend policy?
• Why do you believe this company chose the dividend policy they have in place?
• Do you agree or disagree that they have selected the best dividend policy for the company?
• How might this dividend policy function in both perfect and imperfect capital markets?
• Calculate the dividend rate over the past 5 years. Define why you believe that it has or has not changed over the last 5 years.
Support your position with evidence from the text or external sources.
Your post should be 200-250 words in length.