Business Project Management Management

Question: Financial managers make decisions today that will affect the firm in the future. The dollars used for investment expenditures made today are different from the cash flows to be realized in the future. What are these differences? What are some of the techniques that can be used to adjust for these differences? Answer: Introduction For every business organization or a business project, the sole financial decisions are to be taken the respected financial managers. It has been seen that the difference between the present values of investment varies by the total amount of future cash flows or future present value of investment (Brigham Ehrhardt, 2014). This report will discuss the main reasons behind the differences and different tools of measuring the future cash flows of investment. Differences between present value of investment and future cash flows When an investor invests an amount in a particular project, there is an amount of investment that is termed as initial cash flow of the project. When the project is finished, it can be seen that the total amount of future cash flows is different from the initial investment. This main reason behind this is regarding the rate of cost of capital, discounting rate of cash flows and total amount of cash inflows during the total duration of a given project. It can be further observed that the amount of cost of capital varies from different project to project. Calculation of cost of capital may also depend upon the amount of equity and amount of debt owned by the particular organization (Brigham Houston, 2004). The rate of discounting rate of cash flow also has a major impact upon the final rate of cash flows of the project. Another reason that can be adjusted with the cash flows of future of the project is regarding the present rate of inflation. The technique of interest rates and time v alue of money of a given project also contributes to the variances between the invested dollars and future cash flows of the project. Techniques used to adjust the differences between investment capital and future cash flows There are tools and techniques of capital budgeting that can be used to measure and monitor the variances of investment amount of capital and future inflows of cash of the project. One of the major techniques is Discounting Cash flow method or (DCF model). With the assist of this model, the variances of investment amount and cash flow can be measured and the total amount of differences can be adjusted (Steinhoff Rhodes, 2004). Apart from this, it is also deduced that with the help of time value of money, the project can minimize the given differences. Another tools and techniques that can also be used to measure the variances of cash flow are NPV (net present value), IRR (internal rate of return) Pay back period These techniques are known as of capital budgeting technique. The overall audit and feasibility of the overall project can be measured and monitored with the assist of these capital budgeting tools and techniques. By adjusting the rate of cost of capital and discounting rate of cash flows, the variances can be easily nullified by the differences (Brigham Houston, 2004). Conclusion The report evaluates and throws light on the major reasons behind the differences between the amounts of dollars invested and expected amount of cash flows in future. The different capital budgeting techniques of adjusting the given differences has also been evaluated effectively. References Bonaime, A., Hankins, K., Harford, J. (2013). Financial Flexibility, Risk Management, and Payout Choice. Review Of Financial Studies, 27(4), 1074-1101. doi:10.1093/rfs/hht045 Brigham, E., Ehrhardt, M. (2014). Financial management. Mason, Ohio: South-Western. Brigham, E., Houston, J. (2004). Fundamentals of financial management. Mason, Ohio: Thomson/South-Western. Paramasivan, C., Subramanian, T. (2009). Financial management. New Delhi: New Age International (P) Ltd., Publishers. Steinhoff, J., Rhodes, K. (2004). Financial management systems. [Washington, D.C.]: U.S. Government Accountability Office.