Capital Investments in Emerging Markets Essay

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General Electric Company is one of the most acknowledged companies across the world. The company's center of operations is situated in Boston. In particular, the manufacturing company has various business operations in different segments. These include oil and gas, power and water, aviation and transportation. This shows the company's versatility in manufacturing as it ranges from the engineering industry to automotive industry. The company's prevailing revenue generated lies in the range of $140.39 billion as of the 2015 fiscal year. In the 2012 financial year, the company was ranked as the fourth biggest firm in the world. General Electric Company manufactures aircraft engines, locomotives and other transportation apparatus, lighting, electric control gear, generators and turbines, and medical imaging paraphernalia. In addition, the company is the owner of GE Capital, which provides commercial finance, commercial aircraft leasing, real estate, and financial services for the energy sector (Hoovers, 2016). Since its establishment in 1892, General Electric has expanded its business operations to various nations across the world. With the incessant growth rate and development of emerging markets, the company has a great opportunity to further expand and propagate its business operations (General Electric, 2016).



Suggest a methodology to supplement the traditional methods for evaluating the capital investments of your selected company in the emerging markets to reduce risk. Provide a rationale for your suggested methodology



A recommended methodology to supplement the traditional methods for evaluating the capital investments of General Electric Company in the emerging markets to reduce risk is the discounted payback method. This approach can be very beneficial to the firm, particularly owing to the various business sides. The payback period is one of the simplest methods of evaluating capital investment. In this case, projects or investments with a shorter payback period are more often preferred for investment in comparison to investment with longer payback periods. However, with respect to the discount payback period, the time value of money, also referred to as the discounted value of cash flow is taken into account for calculating the payback period (Capital Investment, 2016). Therefore, this is the period necessitated to recover the initial cash investment for a project, which is equivalent to the discounted value of the anticipated cash inflows.

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This particular methodology takes into consideration the time value of money and the discounting of future cash flows. Bearing in mind that the company has various projects in different business aspects, it is rational and beneficial to employ the discounted payback period (Capital Investment, 2016). Another strong suit of this particular approach is enhancing the capacity of General Electric's management to undertake investment decisions in a contemporary market setting where firms endeavor to attain a competitive edge. However, regardless of these aspects, it is imperative for the management to be wary of the impact that inflation can have on the prospective capital investments set by the firm.



Assess one (1) way in which inflation could potentially impact planned capital investments in emerging markets and examine one (1) approach to perform an accurate evaluation of the investments. Suggest how this knowledge may impact management's decisions



Inflation is delineated as the general increase in the price of goods and services over a certain time period. One of the impacts of inflation is the depreciation of a currency, which implies that such currency has a devaluation in its purchasing power. Considering this, inflation influences the currency exchange rates, general prices and also prospective planned international capital investments. In this case, the exchange rates alludes to the purchasing power of currencies in emerging markets with respect to goods and services from the United States, and also the decline in the dollar with respect to goods and services from emerging markets (Mankiw, 2014).



Inflation can have an impact on planned capital investments for the company and the decisions made by the managers. Owing to inflation, there is an increase in the cost of raw materials as well as a rise in labour wages. In turn, this gives rise to an increase in production costs. The increase in the costs generates obstacles for economic development. Therefore, General Electric Company will find it quite challenging for planned capital investments owing to the ambiguity and doubt regarding price levels. In addition, hedge funds and financial leaders of the company might be hesitant in getting into longstanding contracts that could have possibly given….....

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References


Capital Investment. (2016). Capital Investment Appraisal: Appraisal Techniques. Retrieved from: capital-investment.co.uk

General Electric. (2016). GE Businesses. Retrieved from: http://www.ge.com/

Hoovers. (2016). General Electric Company: Company Profile. Retrieved from: http://www.hoovers.com/company-information/cs/company-profile.general_electric_company.8e594783fd3e6c6e.html

Investopedia. (n.d). Inflation: Inflation and Investments. retrieved from: http://www.investopedia.com/university/inflation/inflation4.asp

Koening, E. (2016). Sensitivity Analysis for Capital Budgeting. Chron: Small Business. Retrieved from: http://smallbusiness.chron.com/sensitivity-analysis-capital-budgeting-10153.html

Lumby, S., & Jones, C. (2001). Fundamentals of investment appraisal. Cengage Learning Business Press.

Mankiw, N. (2014). Principles of Macroeconomics. New York: Pearson.

Ross, S. (2015). What is the impact of inflation on liquid assets-Investopedia. Retrieved from: http://www.investopedia.com/ask/answers/032715/what-impact-inflation-liquid-assets.asp

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2012). Managerial accounting: tools for business decision-making. Hoboken John Wiley & Sons.

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