How to make the right investment choice? Free Essay Example

Financial Evaluation

According to the Net Present Value of the two selected projects, based on excel computations, the NPV are Wine (14,967,000) and Hotel (11,821,000) respectively, for the optimistic scenario. Based on these values, we suggest choosing the hotel investment to possibly attain the largest amount of gains for the company. However, we need to look beyond the numerical NPV, but also consider the effectiveness of money invested based on the IRR of the project. The hotel investment’s IRR is significantly higher than the wine industry, thus we would choose the hotel industry based on the financial information calculated.

Non-Financial Evaluation

Next, we will consider the non-financial aspect of the investment in making the right investment choice. However, we would still maintain our stance in suggesting the hotel industry. This is because of the high levels of hidden and presently unknown costs that could appear and be incurred in this relatively new industry in China. There are numerous external variables which would affect the investment, with unexpected circumstances like bad weather or other natural disasters, leading to unnecessary risk borne by the investor.

Hence it would not be a wise choice for a stable and safe investment. Under the light of such comparison, we can deduce that the hotel industry is much safer with a more predictable level of demand, being a very well-studied and understood industry. This is unlike the winery industry that is almost non-existent in China, hence does not have a strong foothold. This lack of understanding could mean operational risks which could deter its final profitability.

Thus, exploring the choice from a non-financial perspective, it would be more advisable to investment in the less risky investment which is the hotel industry.

Overall Recommendation

In all, based on the discussion from a financial and non-financial perspective, we can deduce that for Kilgors Management, the proposal they should go through with is the hotel industry. It is a much more suitable and sustainable investment with relatively larger IRR than what the wine industry can offer, making it more profitable.

Why do you think it is important for companies to consider non-financial factors when evaluating large investment proposals? Do you think sustainability is an important factor to consider? In your discussion, provide an investment example from a company in Singapore [750 words].

There are numerous important things to take into consideration when choosing how to invest. In addition to the clear important financial factors that can help us estimate returns and yields, there are also a number of non-financial factors that needs to be assessed before committing an investment, especially a large scale one like the one we have discussed in Kilgor.

But, considering the non-financial areas of concern, we have to look at the best match in terms of not only value and but also the company qualities and whether those are in congruence with your own firm. Decades ago, this may not have been an important area of consideration for investors, however, nowadays it is becoming increasingly prominent and relevant to investors. Hence, non-financial aspects of investment are closely watched as well.

Among the factors that are taken in to account, the image of the investing company would be of prime concern when selecting investment. A key question they would be asking themselves is whether the investment that is made would put the company itself in a good light for supporting this industry or cause, or would it be of a detrimental effect, hurting the brand value of the company. This is most relevant in the case of highly polluting industry like foresting and oil refinement, both of which leads to high amount of green house gas which contributes to harmful things like global warming. This scrutiny on such companies lies not only from the perspective of the lawmaker, but also consumers who are becoming more and more environmentally conscious in their choice of companies that they purchase from.

Such attention that is being paid to these companies are not only restricted to these more volatile and dangerous industries in supporting them. Such attention towards sustainability as well as environmental welfare extends to almost all companies that are operating today, affecting problems like the general sustainability of the business as well as reducing the carbon footprint of the company (Rana 2008) Not only do the negative effects of being unsustainable hurts the business, with more and more businesses hopping onto the bandwagon, it is almost definite that companies have to engage in sustainable practices in order to appeal to customers(Cakmak 2016) Given the proliferation of internet and information transfer systems, bad news about a company spreads quickly and a single hiccup could leads to millions of dollars in losses for the company(Francis & Armstrong 2008) Hence, from a third-party investment perspective, it is imperative to make sound investment choices not only in terms of financial decisions, but also from a non-financial aspect to avoid unexpected losses.

Bringing the discussion to a Singaporean context, the main player that we would examine is Temasek Investment Holdings which is the country’s flagship investor that invests on a global level for the country. On its agenda, not only is there the need to generate healthy returns for the country, but also to maintain a healthy and sustainable portfolio that the public would approve of. This means that among the many criteria that Temasek sets out for its investment targets, there would also be a key factor which is how it reflects on the country in investing in sustainable and socially beneficial corporations like the recently invested Ascent Wellness and Healthcare which supports social welfare and betters the lives of many. Such a focus is not exclusive to such entities like Temasek that are generally speaking government led entities, but also for larger corporations like DBS, Singapore’s top bank. Their actions and investments are also the prime concern of their investors and creditors as their sustainability affects how they are able to report about their own investment and operational sustainability.

It is precisely because of this chain of concern and wariness for sustainability that it has resulted in an increased fervor to increase the sustainable practices of a company. This is coupled with the mandatory sustainability reporting for listed and public companies, making it a key function that businesses will have to pay attention to. Arguably, it is because of the greater business value that sustainable practices have on a business in terms of investment that drove large chains like KFC to implement strategies like removing straws from their stores. Furthermore, higherups must remain unbiased and have no emotional attachment when it comes to making decisions to ensure the best options are selected (Angie et.al 2011) All these, come together and help ensure companies make the right decision especially for large proposals that will affect them in the short and long run.

References

1. Angie, A. D., Connelly, S., Waples, E. P., & Kligyte, V 2011, ‘The influence of discrete emotions on judgement and decision-making: A meta-analytic review’, Cognition & Emotion, vol. 25, no. 8, pp 1393-1422
2. Cakmak, I 2017, ‘The role of brand awareness on brand image, perceived quality and effect on risk in create brand trust’, New Trends and Issues Proceedings on Humanities and Social Sciences, vol. 2, no. 2, pp 177-186
3. Francis, R. D., & Armstrong, A 2008, ‘Corporate Governance in Policing: Standards and Ethics’, Journal of Business Systems, Governance and Ethics, vol. 3, no. 3.
4. Rana, S 2008, ‘From Making Money without Doing Evil to Doing Good without Handouts: The Google.org Experiment in Philanthropy’, Journal of Business and Technology Law, vol. 3, no. 1, pp 87-96.