Harvard Business Simulation Free Essay Example, 1000 words

The proposed project should not exceed the proposed budget allocated. In this light, SNC will create a fixed budget that will accommodate intense product development that is in tune with the customer tastes and preferences. Since this is just a proposal, the time value of money should be calculated in order to ascertain whether by the time of its launch the project will have a return on initial investment. The purpose of capital budgeting is to analyze the proposed cash flow attributable to the new project and to decide whether adopting it (increasing client base) will add value to the firm. To achieve that, the management should transfigure the cash inflows expected in future to current-value equivalent. The simulator shows substantial increments in cash flows in SNC’s financial statements over the three-year phase. The historical sales figures for instance in the periods 2010-2012 remain stagnant and dismal. However, with the decision to expand and tap into the company’s wide clientele, the sales seem to increase as projected by the simulator in the present (2013-2016) and future periods (2016-2022). We will write a custom essay sample on Harvard Business Simulation or any topic specifically for you Only $17.96 $11.86/pageorder now The increase in sales directly influenced the earnings before interest and tax (EBIT). The decision to take on new customers has led to fundamental increases in EBIT consistently in the three-phase period. As expected, the net income increased due to increased sales in the phase one of the launch and subsequent phases. Moreover, there was a considerable increment in the free cash flow available to the company. Capitalizing on Supplier Discount An effective supply chain adopted by the organization is vital in maximizing profits of the firm. An effective supply chain would mean that good relations exist between the firm and the suppliers in question. Discounts on inventory from suppliers would mean that the company is able to purchase more at a lower cost. That is, lower opportunity costs in the sense that the saved cash will be redirected to other investment opportunities to draw additional revenue. The decision made is to undertake bulk purchasing in order to get discounts from the suppliers. It is however, imperative to note that the discounts will be ineffective if the level of stock turnover is lower. The rate of stock turnover should be high enough so that SNC can leverage on the discounts accorded to them by the suppliers. The simulator projects increases in the sales margins in the present and future phases as opposed to historical trading phases of the organization.