CASE DESCRIPTION: The primary objective of this case is to describe realistic capital budgeting issues within a large organization. The case illustrates ways that staff inside a corporate finance department (and in related departments) position themselves in the capital planning process. The case also stresses steps that a large firm can take to leverage its size to gain the maximum benefit of investment projects. Further,, the case demonstrates sensitivity analyses in the capital budgeting process, and the resulting internal rates of return. We suggest the case be used to follow the related case “HDTV Systems”, which shows the firm as a medium-sized enterprise and its capital budgeting issues before becoming a division of Global Electronics. This case should be used for students who have been exposed to capital budgeting in a prior course, either undergraduate or graduate. Class time should not exceed two hours, with approximately four hours of student preparation time.
CASE SYNOPSIS: This case involves a need for a decision regarding a large capital expenditure. Students will find that capital planning involves not only the use of accepted capital budgeting techniques, but also a considerable impact based on staff viewpoints that reflect their particular department’s biases. Also explicitly presented are multiple levels of investment worth based on alternative, realistic assumptions. Students can verify IRR and payback calculations using Excel, and they will see that capital budgeting involves fragile forecasts and biases that managers bring to the analytical process.
Journal of the International Academy for Case Studies
School of Business Administration
Kirkpatrick, Alan J. and Gashugi, Leonard K., "HDTV Division of Global Electronics, Inc." (2009). Faculty Publications. 154.
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