Guillermo Must Decide Which Option Research Paper

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That option, to invest in high-tech automation equipment, provides the company with the strong growth it needs to boost its financial standing in the next five years. The company has the opportunity now to pay down its debt, or to use the revenues garnered from the investment in the high tech equipment to further expand. Guillermo, by choosing the high tech option, is setting his company up for success.

The techniques utilized by Guillermo are standard in finance. Net present value is typically used to understand the value of future cash flows. In particular, cash flows that are several years away cannot be priced as if they were equivalent to cash flows today.

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Options such as the automation technology that provide strong positive cash flows in the near-term are inherently attractive, but the full range of NPV analysis will indicate whether such a decision is best for the company in the long run. In this case, the best decision in the short run is also the best one in the long run. Guillermo will naturally want to undertake a sensitivity analysis in order to confirm the findings of his NPV and IRR calculations. At this point, Guillermo will want to subject his assumptions to testing and will….....

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