It shows variance
between the present value of cash inflows and the present value of cash
outflows for a project.
Imagine that it is
2006 and research and development team of Toyota come to finance manager with
two concepts, one is a luxury, hybrid and state of the art design. The other
new car is new car modelled on an existing car on the market with a unique
The earliest is of
course far costlier than the second, and obviously riskier too, since it will
be innovative idea. The next option would be safer and more likely to bring a certain
But, he’s the financial
manager, and he need to approach this more analytically and with numbers. But
how does he put all this together and decide?
Well, that’s why we
have NPV to decide which project will be worth/profitable in future.
(Investopedia , 2017)
of using NPV when making investment decisions
The obvious benefit of the NPV is that a future dollar is worth less than a dollar
today. In every period, the cash flows are discounted by another stage of
Will be able decide whether the project will
increase the company’s value. The NPV computation shows the amount that the job
be able to determine the risk in the market as discounted rate can be modified
in NPV to reflect a number of aspects.
has decision making mechanism and could be able to reject the projects which
has negative NPV.
helps to increase companies value and profit with the good decisions.
Essay, 2017) (Investopedia,
of using NPV when making decisions
Several guesswork will be needed when it comes to company’s
cost of capital. A result of suboptimal investment will happen if the cost of
capital is too low. If it is too high the company might have to give up on profitable
§ It’s hard to use and
difficult to compute the right discount rate.
§ NPV might be hard to
understand since it’s more complicated method.
§ The opportunity cost
of the investment which is not consider when calculating NPV.
§ NPV is calculated
according to cash flows and the discount rate, both of which are tough to evaluation
with 100% accuracy.
factors that should be considered when making investments
is not all about financial aspects. There are non-financial aspects that plays important
part in making any significant investment decision.
of employees and public: The effect
of task on the safety and security of the company employees as well as the safety
of the society or public is a key non-financial consideration.
of suitable project location/site selection:
Place choice includes assessing the needs of a new job against the qualities of
potential places. This shows the custom of new facility location, keeping in
mind job needs.
§ Legal: Good executives
always consider the results of government activities and indecisions on any job
they want to implement.
Availability: Size administration
is the arrangement, sizing, and monitoring of manufacturing or service capability
to guarantee that the least performance levels specified are beaten.
(Ingram, 2009) (Chinweike, 2009)
Toyota Production System is an extremely valuable method
and it helps Toyota to make more revenue. TPS is interrelated and inter-reliant
with the Toyota’s Culture as without one of them, Toyota will not be so effective
as today. From the above, can see that how TPS help company’s working area. By
using it, company can function efficiently and can yield lots of revenues.
It has helped the company in many ways, so many defects
have been reduced in manufacturing process, good bond with supplier, best
quality products and well-timed delivery to customers.
The incorporation of these systems will offer Toyota the finest way advancing
in the worldwide vehicle manufacturing as one of the key companies in the field
and will let Toyota to be at the lead of excellence innovation in the