General notes: Semester 1 Flashcards
Test 1 Review
- Told commencement date 2020 for 3 years therefore project starts 2020-2023
- Space expected to remain idle (unused space available fore entire trial period) no opportunity cost forgone therefore 0
- Capital budget exclude: non incremental costs, depreciation is irrelevant
Variables in capital budget that are likely to expose company to risk of forecasting error:
- Volume: based on profitability
- Working capital: based on assumptions
- Inflation: vary with market therefore hard to predict
- Sales price: uncertain about what market will accept
- New product: competitive market
Ethics from a different perspective
-The ethicality can be explored by considering good for self and other
-Stakeholders:
Company - The company loses out on costs and liquidity to allow the dispensations, but also gains as it keeps
its clients sustainable
Clients - They are given relief, and therefore can survive the pandemic. They can settle rental later.
-Employees - If we lost all of our clients, then we would lose all of our employees anyway
-Some employees will be retrenched, but overall would be for a great good to save some positions
-If company recovers, can re-employ employees later.
-The company is performing poorly, low profits, therefore shareholders are already taking a knock. They are not unfairly enriching themselves
-Employees at clients - if no dispensations, they too would lose their incomes
-There are labour law legalities that need to be adhered to in retrenchments, so must be done properly
-To retrench staff is not illegal and the company may do so.
-The directors have a fiduciary duty to the company, and to ensure its sustainability would be necessary for this duty.
-Overall there is no ethical issue, it is a necessary business practice.
-There are no other evident reporting requirements.
-Any employees who feel the practice is fair could approach the CCMA.
Capital budgeting
-Always do both NPV and IRR
