Bounded Rationality in Education

I am inspired most by the cognitive bias and the risk control of the decision- making while learning this course. Having been engaged in the financial industry for years, I am deeply aware of the fact that most individual investors tend to perform those bounded rationalities for characteristics of decision-making while making investment, but I can’t find out the reason for their existence.After learning this course, however, I feel suddenly enlightened. The phenomenon that has bothered me so long is caused under the influence of the cognitive bias and emotion which will affect the risk assessment and judgment made to the investment object. In western countries, most families make investment mainly in dominant financial assets including stock, bond, real estate and insurance and have strong awareness of the risk averse in above fields.Meanwhile, there’re many organizations and books about the decision-making that are referred to by the individual investor. In Chinese fam ilies, in addition to the above investment of the financial assets, the investment of the family education, as a special form which involves all Chinese people, takes a large proportion. This is because a long-term funding is made by parents ever since their kids are born as a result of the non-free education in China. Never let children lose at the starting line† and â€Å"education is the largest investment† are two popular education ideas in our country, which comprehensively inflect the current situation of Chinese families’ investment to the children education. As parents put the entire earning into their kids, a good return is surely expected. But since income is companied with risk, Chinese education investment, therefore, belongs to the risk investment and, meanwhile, has the specific characteristic that is not covered in western theory.The invest object in this essay is mainly about the education domain in China, I think it’s also necessary to app ly the theory of this course to avoiding the influence of the cognitive bias as well as the mental trap and the irrationality in the education investment. By introducing the behavioral motive of the education investors, I intend to master its pattern and make judgment of the irrational behavior, which, I believe, will help protect the interest of the family investor. FindingThe misunderstanding of the family education investment in China is generated mainly because investors, i. e. parents, make blind investment without thinking about their economic conditions, the investment risk as well as the personalized growth of their children. In traditional Chinese culture, parents’ education investment to their children is unconditional and selfless, which lead to a lack of scientific and rational planning as well as decision in the education investment in many families and, meanwhile, cause some misunderstandings.The â€Å"following blindly† phenomenon of purely pursuing high and abroad education is becoming more and more violent. Considering the cognitive bias of investors, the education investment with high expectation and input, instead of bringing expected return to the family members, leads to extra economic burden and, at the same time, might influence the development of the educatees’ career in the future.As attention has been paid to the generation of the misunderstanding of the education investment behavior, many scholars make analysis in terms of the government policies, the social environment, the high education and other macro level. Through learning the course, I, on the other hand, would like to say that the education investment is mainly from the cognitive bias while investors make their decision. The cognitive bias includes all kinds of decision-making bias caused by the restraint of investors’ cognitive psychology and external environment.The cognitive bias of the decision-making of the family education investment is gener ated under the influence of the external environment and socio-cultural background with the asymmetric information as well as the cognitive level and personal preference of investors, which causes the lean on Heuristic. Bazerman argued that the misapplication of heuristics to inappropriate situations leads people astray. It’s difficult to calculate the specific input and output of the family education investment in a quantitative way, resulting in the ambiguity of the assessment of the effect of the education investment.As there’re a large number of variables of the non-monetary cost-benefit in the education investment, our estimation has to be adopted to judge the cognitive part SYSTEM 1. Analysis Despite the difference in the investment object between the education and the traditional investment, the behavior of the education investment of a family which is as a micro investor, is subject to the risk of the expected return of the investment, the risk as well as the i nfluence of other corresponding factors, which has common character with the investment behavior in the decision-making.The science of behavior and decision-making, as a course between the marginality of the psychology and the economics, tries to involve the behavior of the irrational complex investors into the standard theory of the decision-making by making amendment to the assumption of the traditional management theory according to the research findings in the psychology. In our study, we find the decision-making theory laying more emphasis on people’s â€Å"bounded rationality†.It explains the investor behavior and makes it more close to reality based on the theories of the cognitive psychology and the behavioral science as well as related principles of the economics. Under the condition of uncertainty, some cognitive factors will influence people to make their decision. The most common way is to make decision by adopting â€Å"the elicitation method† by in vestors. It’s not easy to make a rational investment while facing the risk mainly because it can’t avoid the heuristic bias in the decision of the family education investment.The effect of the demonstration by example of the education investment income and the representativeness heuristic. Family investors usually care too much about the prominent, specific and typical information while neglecting the abstract and complex data. Therefore, parents often take typical cases learned through media as the foundation and reference for the decision-making, which might be influenced by the â€Å"representativeness heuristic bias†.For example, some families help their children study abroad considering the successful cases they know, though overseas study might not fit them at all. It is believed that people can find familiar modes to make judgment by assuming that the circumstance in the future is similar to that in the past without thinking about the reason of how those modes happen or the repeat probability of those modes. Decisions and judgments made under the condition of uncertainty are not accurately calculated and analyzed by using the probability theory in the assumption of the â€Å"Rational Man†.It is firmly convinced by investors with â€Å"representativeness bias† in the stock market that a â€Å"good company† can surely produce â€Å"good stock†, similarly some parents will believe that a â€Å"good school† can foster â€Å"good students†, which typically embodies the representativeness bias. The limitation of searching information by investors and the availability heuristic. Regarding the availability heuristic, some people think that it is generated due to the overwhelming memory and search bias, that is to say, not all information will be searched unbiasedly while related information is searched in memory.Decision makers of families tend to use information that is easy to access, so the limit ation in searching information is inevitable since people can’t have a comprehensive knowledge about the professional quality of education providers, the demand for the education products in future market as well as the state of educatee’s endeavor and intelligence. We can say that the characteristics of the information insufficiency and asymmetry really stand out.Besides, there’s a distinct asymmetry in the cost and benefit of the education investment caused by the hysteretic nature of the decision-making effectiveness of the education investment. The decision-making of the education investment, built based on the future expectation, is a subjective expected value by people. Information that is searched from memory in the first place will become the major foundation for people to make judgment and decision as this information has advantage in the stimulus frequency, novelty and vitality.For example, high education means high income. Studying at college is, on a whole, positively correlated to the income obtained by children in the future. Parents tend to compare their children with the group of the same age in the education level, usually with those accessible ones such as relatives, colleagues or those reported in news media. Compared with the complicated and boring calculation and prediction as well as the omnibearing information search that waste time and energy, people would rather picking common reference object as the decision foundation.Though it can simplify the process of decision-making and reduce its difficulty, the availability information has strong one-sidedness and bias can be seen in the behavior that the decision-makers pick the information itself. We can see from the above that the â€Å"availability bias† is a key factor not to be neglected in the misunderstanding of the family education investment. The competitive psychology and anchoring effect of the education investment.We often develop estimates by starting with an initial anchor that is based on whatever information is provided and adjust from the anchor to yield a final answer (Epley, 2004; Epley & Gilovich, 2001). Mussweiler and Strack (1999) showed that the existence of an anchor leads people to think of information that is consistent with that anchor. The competition in the education investment shows parents’ expectation for their children while the competitive psychology can influence decision-makers’ normal investment behavior owing to the negative effect caused by the anchoring effect.Decision-makers, for lack of the quantitative analysis, usually refer to the obscure reference foundation obtained from former experience and make comparison as well as judgment of the input and income from one or several points of view, which will become the key point in the decision-making of the education investment. The competitive psychology is necessary for the achievement of higher value in one’s life.Many families, how ever, ignoring the specific circumstance of educatees, take the education investment as an unrealistic comparison caused by the anchoring effect which influences the investors to rationally adjust the â€Å"anchored† object. The family decision-makers will decide the investment direction and level according to the â€Å"anchored† assessment result by choosing external reference objects which distract their normal decision-making. Therefore, an irrational conclusion is generated. The bias produced by the education investment object can direct influence the decision of the investee.That is to say, the cognitive bias of the decision of obtaining employment appears among graduates, which consequently lead to the output of the education investment that is less than the expected return. Firstly, We can see the bounded rationality of the graduate employment from their overconfidence. The overconfidence might be the most stable psychological feature of human being since it is indicated in many evidences that people tend to be overconfident for the estimation of the occurrence probability of uncertain events while making decision.Thus bolstered by the availability of supportive evidence, we overestimated the accuracy of our knowledge and the truth of our tentative hypotheses (Koriat, Lichtenstein, & Fischhoff,1980) This feature, however, can lead to an overestimation of their knowledge and ability, an underestimation of the existing risk as well as the exaggeration of their control ability of events and, what’s worse, the decision bias. Besides, the â€Å"Sheep-Flock Effect† that are based on information, reputation and reward can be found among graduates as a result of the herd mentality, which might influence graduates’ decision-making of obtaining employment as well.Second is the self-control bias. The so-called self-control means the control of emotion. Without the self-control, no rational decision can be made and, meanwhile, ind ividuals tend to attribute success to themselves while failure to others or objective conditions. In obtaining employment, the failure is usually attributed to non-self factors such as the recruitment policy of enterprises or the stronger backstage of others instead of to students themselves or to the fact of whether they fit such enterprise culture and work environment.With such bias, students, even though be hired by certain enterprise, will finally be eliminated due to their weak adaptation. Solutions Owing to the feature of the family education investment, the investor is not exactly the beneficiary. The beneficiary of parents’ education investment is their children while its decision-makers are parents, so the quality and cognitive level of parents have an important influence to the investment behavior. With the strategies of our literature (Bazerman, Chapter 11), I supposed to provide three of them to solve our problem and increase the effectiveness of investor’s decision-making processes.In our case, parents should firstly DEBIAS JUDGEMENT to unfreeze their basic knowledge and psychology about the education investment and, by making analysis of typical cases, be guided to know the source and harm of various blind education investment as well as to think about the decision process and behavioral characteristic of themselves so as to avoid the herd mentality. The second solution should be provide to those administration department of the public.They should strengthen the informatization construction, lay stress on the policy advocacy and the public opinion’s influence to the family education investment as well as construct the â€Å"rational† environment of the education investment. Provided investors have enough accurate information, it will help avoid the generation of the bias and reduce the frequency of bias behavior. Meanwhile, the public opinion department should increase the information channels as well as the number of information issued and its promptness and accuracy so that media can correct the bias of investors’ behavior.Finally, Using expertise or taking a outsider’s view can be a good choice for our investors. The planning and consulting industry of personal career and special agency of the family financial management should be rapidly developed to make up the lack of the cognition of investors. Owing to the long period length and the irreversibility of the education investment, family decision-makers have no chance to learn and improve their behavior one more time. In that case, a special agency should be adopted to guide decision-makers to be more rational by making analysis of their psychology.As the decision-making of the family education investment is traditionally seen as a family issue that can only be decided by family members, a special agency is needed to make planning and guidance of the behavior with strong sense of subjectivity and irrationality. In some developed countries, the career planning companies as well as the assessment and testing agencies for the personality development of students are set up to make up the limitation of decision-makers’ cognition about the educated.There are a large number of institutional investors in the financial field which grasp detailed and accurate information as well as solid professional theoretical knowledge since they are professional investment organizations operated by technical investment staff with rich experience, so they usually can secure their ends in the market by their advantages compared to those medium and small investors. The latter has more â€Å"irrational† factors than institutional investors.Every individual decision of the family education investment is like the â€Å"private investor† in the stock market while enquiry agencies equipped with professionals and technical evaluation software are like the â€Å"institutional investor† which can make put forwar d the advice of the rational education investment as well as the prediction of the future return on the basis of fully respecting the individualization growth of students through the scientific analysis made by professionals and the systematic evaluation with the help of professional software, in which way the misunderstanding of the behavior can be effectively avoided.Conclusion In this essay, we have introduced the investment of the education in China, as a special investing form which involves all Chinese people, belongs to the risk investment and, meanwhile, has the specific characteristic that is not covered in western culture. Since it’s difficult to calculate the specific input and output of the family education investment in a quantitative way, I depicted five typical cognitive biases to evaluate the misunderstanding in our investment. The first three biases the representativeness heuristic, availability heuristic and anchoring belong to the investor.But the bias abov e produced by the education investors can direct influence the decision of the investee. The overconfidence and self-control bias become the main biases of the students when they graduated from school. With such biases, the utilities of the output always take disappointment. Owing to the biases, I also provide some strategies of our literature to solve our investing problem and increase the effectiveness of investor’s decision-making processes. By using expertise or taking a outsider’s view and debias judgment, investors are able to unfreeze their mindset and provide their children a better decision in education.References: [1] Max H. Bazerman & Don A. Moore, 2009, Judgment In Managerial Decision Making, 7th Edition. [2] Tim Dalgleish & Mick J. Power, 2000, Handbook of Cognition and Emotion, WILEY [3] Tversky A, Kahneman D. , 1974, Judgment under uncertainty: Heuristics and biases. Science. [4] Tversky A, Kahneman D. , 1972, Subjective probability: A judgment of repres entativeness. Cognitive psychology. [5] Shleifer, A. , 2000, Inefficient Markets: An Introduction to Behavioral Finance. Oxford: Oxford University Press.

The Right to Education

The Right to Education – A Global Perspective â€Å"Education is the most powerful weapon which you can use to change the world. † Nelson Mandela This saying of Nelson Mandela reveals a lot about the importance of education as a mean of achieving the changes we want to see in the world. Realizing the importance of education is highly significant for the nation and the world as a whole; however, giving equal education opportunities to people within specific countries and around the world remains a challenge for the global society.In order to overcome, or at least ease, such challenges, the right to education has been a subject of matter of international law, as well as state constitutions. While a great number of countries have been signatories and ratifiers of international conventions that protect the right to education, many countries have failed to provide the essential capacities to assure this right for various reasons. The failure to protect this right, no matter the reasons, has been quite harsh for the most vulnerable groups of different societies; hence, leaving millions of people worldwide without the capacity to contribute to a better world.As such, this paper will firstly focus on the protection of this right by international law, and it will later focus on the protection of the right to education in the following countries: Finland, Venezuela, India and finally Kosova. The Right to Education and the International Law The right to education, as a human right, has been highly guaranteed and protected by international law for many decades now. To begin with, the Universal Declaration of Human Rights (UDHR) in 1948 marked the universal recognition of the right to education.The Declaration guarantees the right to education through Article 26, which among others states that: â€Å"Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Techni cal and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit . † Furthermore, the right to education is protected by the Convention against Discrimination in Education, adopted in 1960.This convention, through its 19 articles plays a high significance in the struggle of the global society to hinder the discriminations and separations in education . Later on, the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), adopted in 1979, guarantees women equal rights with men in terms of education . In addition, in 1966, the right to education was also preserved in the International Covenant on Economic, Social, and Cultural Rights, specifically through articles 13 and 14.Both article of ICESCR make primary education compulsory and free of charge, as well as oblige the states to make secondary and higher education easily accessible to all . Nevertheless, the Convention on The Rights of The Child (CRC), adopted in 1989, was a significant step in the protection of children from discrimination of any form. Articles 28-32 of this convention particularly deal with discriminations made in education. Signatories of this convention â€Å"recognize the right of the child to education,†¦with a view to achieving this right progressively and on the basis of equal opportunity . As mentioned previously, besides international law, the right to education is also enshrined in many regional instruments and most of the countries’ constitutions, though the compliance to the international/regional/national instruments varies to a great extent from country to country. As such, there are great disparities between school enrollment rates in different countries, and the following sections of this paper will deal with the protection/application of the right to education in specific countries and their effects on the education activities. FinlandFinland proved to be one of the most successful countries in the education field. Actually, it was ranked as the fourth country out of 48 countries belonging to different development phases. Undoubtedly, one of the crucial factors that facilitated this achievement was Finland’s hard work in protecting the right to education. First of all, Finland is a signatory of all of the above-mentioned international instruments, which make Finland legally binding to all of the above articles. Furthermore, the Constitution of Finland protects the right to education through Section 16 of Chapter 2 .The constitution makes primary education free and compulsory to all children. Nevertheless, the constitution makes the state accountable for providing equal opportunities to all citizens even after finishing the compulsory education . The right to basic education in Finland is further protected by the Basic Education Act, which makes the municipalities responsible for providing education in both languages (Sweedi sh and Finnish), as well as providing free school materials, meals, and transportation to all students of pre – primary and primary education.The Basic Education Act also protects the right to education of the disabled children by making them entitled to special â€Å"interpretation and assistance services†, all for free . Furthermore, the Universities Act of Finland makes undergraduate studies free of charge for studies in Finnish and Swedish, as well as freeing from undergraduate studies tuition students of EU member countries . As mentioned previously, Finland is one of the few countries where the right to education is well protected, and cases of violations of this right are not common at all and are hard to find. VenezuelaVenezuela has ratified all the international instruments mentioned above, which means that Venezuela is obliged to comply with those articles that regulate the right to education. Besides that, the right to education in Venezuela is also protecte d under the Venezuelan Constitution. Chapter VI of this constitution deals specifically with education, and Article 102 of this chapter states that â€Å"Education is a human right and a fundamental social duty, it is democratic, free of charge and obligatory . † Further, Article 103 guarantees equal opportunities for all students, including disabled students .In addition to the Venezuelan Constitution, the right to education in Venezuela is also protected by the Organic Law of Education, decreed on 2009. Article 3 of this law, makes education â€Å"public, social, compulsory, free of charge†¦ quality, secular, comprehensive, and permanent, of social pertinence, creative, artistic, innovative, critical, multicultural, multiethnic, intercultural, and multilingual †. Article 6 of the Law gives access to education to disabled students and students in the â€Å"Adolescent Responsibility Penal System† .Furthermore, Article 6 makes the state responsible for devel oping the mechanisms that control the right to education. However, despite the progress Venezuela made in legally protecting the right to education, many challenges still remain and make the reality less desirable, one of those issues being the certification of the asylum students. Asylum seekers deal with delays in getting certified for their studies because they have to first be recognized as refugees, a process that often takes a lot of time.Furthermore, if an asylum seeker finishes a certain level of education in his/her home country, that certification will not be recognized until the student receives Venezuelan documents. As Rodrigo de La Barra puts, such delays of certification, prohibit students to continue with their studies, hence hindering motivation and increasing drop-out rates. It is important to mention that both these cases are violation of the Convention on the Rights of Children, a convention to which Venezuela is legally binding . IndiaContrary to Finland and Vene zuela, India is not legally binding to the International Convention against Discrimination in Education. Still, it is legally binding to the other international conventions dealing with education . The right to education in India is protected in its constitution in the Article 21A, which obliges the state to offer free/compulsory basic education to children 6-14 years old. Furthermore, Article 29. 2 prohibits the discrimination in education made to minorities, whether that is racial, religious, or caste based discrimination.Nevertheless, Article 30 gives them the right to develop their own educational institutions . A highly significant step on the improvement of protection of the right to education in India was made in year 2009, when the Right of Children to Free and Compulsory Education Act was passed. This Act’s aim is guaranteeing every child of age 6-14 free and qualitative education, as well as defining the ways the state shall use in protecting such rights. Besides ma king education free and compulsory, this act also says that children cannot be left out because the admission period is over, or because of the lack of documents.Furthermore, the act gives the disabled students the opportunity to participate in the mainstream education . Noticeably, the government of India has made important steps in protecting the right to education; still, what lies in papers is quite different from the actual situation in India. Though the school enrollment rates have increased in India after passing the Act, the participation rates and drop-out rates are not so optimistic. Yet another concern in India is the low quality education, which is a result of †poor curriculum and syllabus, deficient pedagogy, negligent teachers † and parents.Nevertheless, discrimination, though prohibited by the Act, is still prevalent in the Indian education system. It is the Act itself that leaves space for such discrimination since it allows for school categorization as f ollows: â€Å"a) government schools b)aided private schools c)special category schools and d)non-aided private schools †. By allowing the existence of such school categorization, the Act legitimizes the discrimination of the poorer children who become subjects of lower quality education, as compared to the rich students.That violations of the right to education, guaranteed by the Act, are a serious concern in India, is shown by the great number of cases of violation. According to Amod Kanth , 10,500 cases of violation of the act have been recorded in Delhi, within a nine-month period after the implementation of the act. Kanth states that such violations are â€Å"of at least 15 kinds, like screening tests before admissions, corporal punishment, admission denial, mental harassment and others . These figures of the violations in the capital city seem quite concerning, and I believe that they clearly picture the state of the right to education in India. Conclusion In conclusion , education is an essential process which enhances the intellectual development of human beings. Despite being a right in itself, it is also a tool to achieve many other rights. Therefore, ensuring an education to every child is of a high significance, not only for the child alone, but also for the well-being and the development of the society.As such, guaranteeing that every human being is given the opportunity to be provided with such a development activity has been an important subject of many international, regional, and national instruments, among them: Universal Declaration of Human Rights, Convention against Discrimination in Education, Convention on the Elimination of All Forms of Discrimination against Women, International Covenant on Economic, Social, and Cultural Rights, Convention on The Rights of The Child (CRC), as well as the national constitutions of almost all countries.However, as the cases in Venezuela and India, show, the protection of the right to education by l egal instruments is not sufficient unless its implementation in the real life is ensured. Problems related to the application of this right arise every day, leaving millions of children worldwide, including highly developed countries, without even basic education; hence, without the potential to contribute to the improvement of the global society.Therefore, it is crucial that we, as individuals, start contributing to the gradually easing of the obstacles preventing the world from becoming a better place for everyone, either by making better laws or by implementing those laws better.

Capital Budgeting

Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? Capital budgeting is the process of analyzing potential additions to fixed assets. Capital budgeting is very important to firm’s future because of the fixed asset investment decisions chart a company’s course for the future. The firm’s capital budgeting process is very much same as those of individual’s investment decisions. There are some steps involved. First, estimate the cash flows such as interest and maturity value or dividends in the case of bonds and stocks, operating cash flows in the case of capital projects. Second is to assess the riskiness of the cash flows. Next, determine the appropriate discount rate, based on the riskiness of the cash flows and the general level of interest rates. This is called project’s required rate of return or cost of capital in capital budgeting. Then, find the PV of expected cash flows and the asset’s rate of return. If the PV of the inflows is greater than PV of outflows (NPV is positive), or if the calculated rate of return (IRR) is higher than the project cost of capital, accept the project. Question b What is the difference between independent and mutually exclusive projects? Between normal and non-normal projects? Independent projects mean a company can select one or both of the projects as long as they meet minimum profitability. This is because the projects do not compete with the firm’s resources. Projects are independent if the cash flows of one are not affected by the acceptance of the other. Mutually exclusive projects mean if acceptance of one impacts adversely the cash flows of the other which is firm can select one or another project but not both. This is because projects investments that compete in some way for a company’s resources. When projects are mutually exclusive it means that they do the same job. Normal projects have outflows, or costs, in the first year (or years) followed by a series of inflows. Non-normal projects have one or more outflows after the inflow stream has begun. So, we can conclude that the lower the WACC, the higher the value of NPV. Question d 1) Define the term internal rate of return (IRR). What is each project’s IRR? Internal rate of return (IRR) is the discount rate that will equate the present value of the outflows with the present value of the inflows. The IRR is the intrinsic rate of return. By using financial calculator, the IRR for project L is 18. 13% while the IRR for project S is 23. 56%. 2) How is the IRR on a project related to the YTM on a bond? A project’s IRR is the discount rate that forces the PV of the inflows to equal the cost. This is equivalent to forcing the NPV to equal zero. The IRR is the estimate of the project’s rate of return, and it is comparable to the YTM on a bond. 3) What is the logic behind IRR method? According to IRR, which project should be accepted if they are independent? Mutually exclusive? The logic behind IRR method is; if the IRR is more than WACC, the project will be accepted, but the project would be rejected if the NPV is less than WACC. IRR that equal to WACC means it is technically indifference whether we accept or not the project, will not gain any benefit or loss. According to IRR, both projects can be accepted if they are independent because the IRR for both project have percentage more than the percentage of WACC. But, if they are mutually exclusive, only one project that should be accepted that is project S. This is because the IRR for project S is 23. 56% and it is higher compared to the IRR for project L which only 18. 13%. 4) Would the projects’ IRR change if the WACC changed? No, the IRR would not change if the WACC changed. Question e 1) What is the underlying cause of ranking conflicts between NPV and IRR? In the normal project for the NPV profiles to cross one project must have both a higher vertical axis intercept and a steeper slope than the other. A project’s vertical axis typically depends on the size of the project and the size and timing pattern of the cash flows. For example, for the large projects and with large distant cash flows would expect to have relatively high vertical axis intercepts. The slope of the NPV profile depends entirely on the timing pattern of the cash flows. The long-term projects have steeper NPV profiles compared with short-term projects. So, NPV can only cross in two situations which is when mutually exclusive projects differ in scale or size and when the projects’ cash flows differ in terms of the timing pattern of their cash flows (Project L and S). 2) What is the â€Å"reinvestment rate assumption†, and how does it affect the NPV versus IRR conflict? The underlying cause of ranking conflict is the reinvestment rate assumption. All DCF methods assume that cash flows can be reinvested at some rate. This applies to Project L and S. When we calculated their NPV, we discounted at WACC, 10% which means that we assuming that their cash flows could be reinvested at 10%. IRR assumes that cash flows are reinvested at the IRR. Discounting is the reverse of compounding. Compounding assumes reinvestment and also for the discounting. NPV and IRR are both found by discounting, so they both assume some discount rate. NPV calculation is the assumption that cash flows can be reinvested at the project’s cost of capital while the IRR calculation assumes reinvestment at the IRR rate. 3) Which method is the best? Why? The NPV tells us how much a project contributes to shareholder wealth. The larger the NPV, the more value the project adds, and added value means a higher stock price. Thus NPV is the best selection criteria. A project IRR is the discount rate that forces the PV of the inflows to equal the cost. This is equivalent to forcing the NPV to equal zero. However, NPV or IRR give better ranking is depends on which has the better reinvestment rate assumption. NPV is selected because it used as a substitutes for outside capital hence save the firm cost of outside capital. For most firms, assuming reinvestment at the WACC is more reasonable for the following reasons. If a firm has reasonably good access to the capital markets, it can raise all the capital it needs at the going rate, which in our example is 10%. Since the firm can obtain capital at 10%, if it have investment opportunities with positive NPV, it should take them on and it can finance them at a 10% cost. If a firm uses internally generated cash flows from past periods rather than external capital, this will save it the 10% cost of capital. Thus, 10% is the opportunity cost of the cash flows, and that is the effective return on reinvested funds. However, NPV and IRR usually give the same results to accept or reject the project for independent project. NPV and IRR occurs conflict only when mutually exclusive projects are involved. Question f 1) What is the difference between the regular and discounted payback methods? Payback period is defined as the number of years required to recover the funds invested in a project from its operating cash flows. Discounted payback is the length of time required for an investment’s cash flows, discounted at the investment’s cost of capital to cover its cost. Actually, discounted payback is similar to regular payback except that discounted rather than the raw cash flows are used. 2) What are the two main disadvantages of discounted payback? Is the payback method of any real usefulness in capital budgeting decisions? Discounted payback does consider the time value of money, but it still disregard cash flows beyond the payback period, which is a serious flaw. For example, if mutually exclusive projects vary in size, both payback method can conflict with the NPV, which might lead to a poor choice. However, many firms still use the payback to do the capital budgeting decisions. Payback and discounted payback used as a measure of project’s liquidity and risk. The shorter the payback, other things held constant, the greatest the project’s liquidity. This factor is important for smaller firms that do not have really access to the capital markets. Cash flows expected in the distant future are generally riskier than near-term cash flows, so the payback is used as one risk indicators.

Packaging and Pricing Strategy Essay Example | Topics and Well Written Essays - 1500 words

Packaging and Pricing Strategy - Essay Example One firm that has successfully integrated into the Lowes paradigm is Green Fiber. I.-Introduction Lowe’s Home Improvement Warehouse is an American-based chain of retail home improvement and appliance stores. The Mooresville, North Carolina-based chain has grown from a tiny hardware store into the world’s second-largest home improvement retailer. (Fortune, 2008) Lowe’s is ranked 48 in the 2008 Fortune 500 Largest Corporations in America. (Fortune, 2008) The company has grown nationwide and today, its stores offer around 40,000 products in stock and even more products are available through their Special Order Service. (Lowes, 2013) One of the most unique branding success stories within the Lowes family is Green Fiber. Green Fiber has developed the capacity to turn what has previously been an environmental "problem" into a major commodity in the building products industry. Green Fiber's natural fiber insulation offers a substantial environmental benefit: made from 8 5 percent recycled paper fiber, Green Fiber insulation products divert millions of tons of paper from landfill each year. (Green Fiber, 2013) As a natural fiber blow-in insulation made with no harmful chemicals, Green Fiber insulation products provide a safe option for builders and DIY homeowners that wish to improve the efficiency of their home insulation without introducing chemically treated materials. (Green Fiber, 2013) Product Description: Green Fiber Cellulose Insulation provides a smart environmentally-friendly choice for home upgrades and new construction. Cellulose insulation is a cost-effective alternative to conventional fiberglass insulation. It provides a green, efficient, non-toxic, affordable thermal solution that increases any homes efficiency and thermal qualities. Blow In Natural Fiber Insulation acts as a thermal blanket in the attic space of a home by increasing the insulation R-values and making homes more energy efficient. (Green Fiber, 2013) II. Current Produ ct Analysis: Green Fiber Insulation is currently the only cellulose-based insulation material offered by Lowes Home Improvement Warehouses. (Lowes, 2013) The main product competitor found on the shelves of Lowes is conventional pink fiberglass insulation that is sold in rolls and bundles. The established presentation of the product is adequate but not dazzling. The simple fact is that Green Fiber Insulation is treated just like its Fiber Glass insulation competitors. In Lowes Home Improvement Stores it is sold as a bulk basic material with limited product information beyond R-Value properties and quick installation guides. The Product Life Cycle of Green Fiber Insulation is at an intersection point. Since the product’s introduction in 2000 cellulose insulation product sales have grown by over 57%. (Green Fiber, 2013) Cost of Green Fiber Insulation is declining on a per unit basis because of increased sales. As profitability for Green Fiber has increased direct competitors (ce llulose insulation manufacturers) and indirect competitors (fiberglass insulation manufacturer’s) have regressed into the market and are attempting to challenge Green Fibers position.

Architecture year 2 essay. Management, practice and law Essay

Architecture year 2 . Management, practice and law - Essay Example All the above features will be explained under â€Å"architecture and me†. Additionally, one’s position on sustainability and the potential value of one’s practice will be presented under â€Å"architecture and the world†. The second section of the paper will investigate the proposition for a building. The unrealised, virtual subject will be critically analysed on the basis of energy consumption, pollution, and density issues, in order to assess the quality of the proposition. Thesis Statement: The purpose of this paper is to examine the kind of architect one wants to become, including appraising the principles of business management and law one would adopt to underscore one’s professional practice. Further, one’s position that would characterize future work with respect to sustainable architectural design will be explained. Secondly, Nakheel Tower, an unbuilt sky-scraper in Dubai, United Arab Emirates will be critically analysed in relation to urban density, environmental pollution One of the prime objectives in project delivery is sustainable construction which â€Å"minimizes impacts on the environment, generates minimal waste during the construction process and produces energy efficient, low maintenance buildings† (Elmualim, Czwakiel, Valle, Ludlow & Shah 2009: 94) with an emphasis on ecology and green designing of buildings. A complex and diverse concept encompassing a wide range of disciplines, sustainable development is defined as â€Å"development that meets the needs of the present without compromising the ability of future generations to meet their own needs† (Garland, Hadfield, Howarth and Middleton 2009: 1144). Due to a fragmentation of interests in the building processes, ambiguity regarding the definition of sustainable buildings and absence of easily recognizable business cases, there can be difficulty faced in creating sustainable buildings. For these reasons, the United Kingdom government has formulated relevant policies for

The Jet Engine Essay Example | Topics and Well Written Essays - 1500 words

The Jet Engine - Essay Example Fuel and air is mixed and ignited inside the cavity of the engine. However, jet engines are different for other type of internal combustion engines, as they have no pistons. Jet engines have lesser moving parts as compared to the piston based internal combustion engine. The main parts of the jet engines or gas turbine engine are turbine, compressor, fuel ignition system and a connection rod that connects turbine and compressor. The compressor, ignition system (burner) and the turbines are the core of the jet engine. The word gas generator refers the core of the jet engines as hot gases are produced within the core of the jet engines. The compressor compresses the air inside the engine. The compressed air is mixed with fuel and ignited. Due to the ignition, the fuel burns rapidly in the presence of air and hot gases rush out of the engine through the turbine. The turbine rotates as the hot gases rush out of the engine due to the aerodynamic energy (Birch 2001, p.74). Turbine and compressor are connected with a same shaft. The rotation of the turbine rotates the compressor that compresses more air into the engine. Jet engine output is evaluated with respect to the thrust it produces. Each jet engine in the aircraft produces thrust that makes the aircraft to move forward (Soares, 2008, p.67). The motion in the aircraft verifies Newton’s third law that states, â€Å"For every action there is an equal and opposite reaction† (Holzner 2011, p.45). The thrust of the engine is in the backward direction that produces an opposite and equal amount of force in the airplane and airplane moves in the forward direction. Forward momentum allows the locomotive having jet engine to move in forward direction. Forward momentum depends on the net thrust. Net thrust of a jet engine makes the airplane or any other locomotive to move in the forward direction. However, in case when there is no forward momentum, the

ROOM by Emma Donoghue - socialization and affects on development Essay

ROOM by Emma Donoghue - socialization and affects on development - Essay Example Somehow, the developments witnessed by the protagonist, portrayed by Donoghue mirror the Freud’s Oedipus Complex theory, which claims to be child’s maintaining physical and sentimental attraction to the parent of his/her opposite gender. Recent studies endorse the very notion that psychodynamic and person-centered methodologies have obtained profound popularity during twentieth century onward with regards to personality development perspectives. One of the most important reasons behind applying these approaches includes the exploration of the factors playing vital role in the personality development and formation during the initial years of human life. Hence, the works created by the writers, poets, philosophers, painters and film directors etc are analyzed and investigated into by keeping in view the psychological approaches articulated by the theorists while determining the factors of cognitive and personality developmental processes. Famous early 20th century American psychologist has articulated his Hierarchy of Needs Theory, where he has discussed the nature of the basic human needs and essentiality of the fulfillment of these needs for the adequate growth of the individuals. Five motivational factors, according to Maslow, include physiological, safety, social, ego and self-actualization. Physiological needs are those, which come under the definition of basic necessities of life i.e. food, clothing, and shelter, all of which are the needs without which man is unable to survive even for long. The second motivational factor i.e. safety discusses the sense of protection man requires for his mental peace and physical well-being.