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Financial management Lecture # 6

Jan H. Jansen jan.jansen@han.nl. Financial management Lecture # 6. Programme (Spring 2008). Investment Decisions. Investment Equipment Building R&D Environment Sustainability Staff / HR Maintenance Operating costs. Additional Funds Equity Loans. Investment trade off (I).

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Financial management Lecture # 6

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  1. Jan H. Jansen jan.jansen@han.nl Financial managementLecture # 6

  2. Programme (Spring 2008)

  3. Investment Decisions

  4. Investment Equipment Building R&D Environment Sustainability Staff / HR Maintenance Operating costs Additional Funds Equity Loans Investment trade off (I)

  5. Cash Outflows Equipment Building R&D Environment Sustainability Staff / HR Maintenance Operating costs Cash Inflows Sales Lower costs Investment trade off (II)

  6. Components of the Capital Budget Model • Investment (Year 0) • Economic Life of the Investment • Years 1 - n • Interest Rate: i = r + π + σ • r = real interest rate • π = inflation • σ = risk (project risk mark-up • Annual Cash Flows (During economic life) • Expenses • Revenues

  7. Decision Criteria • Pay Back Period (PBP) • Return On Investments • Discounted Pay Back Period (DPBP) • Net Present Value (NPV) • Profitability Index • Internal Rate of Return (IRR)

  8. DOSIT Model • Model developed by: • TNO (Applied Research in Science) • Chair of TQM in Networks of Organisations • Prof. Gerard Berendsen • Source: • Duurzaam innoveren met de DOSIT-methodiek, G. Berendsen cs, Sigma Kluwermanagement, June 2006

  9. Dutch Duurzaam Ondernemen Selectie Innovatieve Technologie English Sustainable Entrepreneurial Selection Innovative Technology DOSIT Model

  10. Why DOSIT? Hot topics in business are: • Innovation • Product innovation • Innovation of processes • Sustainability • Stewardship / Managership / Bailiff (UK) (Dutch: Rentmeesterschap) • Investments

  11. Innovation: • Products • Process Sustainability Investing

  12. Sustainability & Entrepreneurship in SME’s • Company meets the requirements from the government and keeps in mind future reqyuirements • Company fulfils its social and cultural role in society • Company plays in an effective way its role in the huge changes in society & economic development for the mid and long term

  13. Sustainability & Entrepreneurship in SME’s • The product, the way the product is used and will be used • The production process (including resources) • The way the product is introduced on the market

  14. Basic assumptions: DOSIT model • Focus as a company on a limited number of activities connected to sustainability • Intrinsic motivation of staff concerning change in general and sustainability: specific • Communication in the company concerning sustainability: Top Down & Bottom Up • ‘Quick and dirty job’ in SME’s, staff wants to see immediately results • Aspects of sustainability have influence on the continuity of the company • Sound financial base is important for the continuity of the company

  15. Profit People Planet

  16. Stages in the DOSIT methodology • Preparation • Choice of priorities in the areas of Key Success Factors • Selection of possible Innovations • Final choices of Innovations • Implementation of Innovations

  17. DOSIT Matrix (Overview Priorities)

  18. Constraints in the process of sustainable innovation • ROI requirement (bottom line) • Requirements clients • How do process interfere in the chain? • Feasibility (in a technical way) • Connection with future developments & ambitions of the company • What is target for the degree of sustainability • How much will be the impact of the innovation (paradigm shift?)

  19. DOSIT Method: Excel tool

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