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Strategic Models Based on Management and Accounting - Dissertation Example

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The paper “Strategic Models Based on Management and Accounting” discusses the model introduced by Airey and Young, which holds that strategic factors take precedence over financial factors; in other words, projects should be evaluated and accepted on the basis of sound strategy…
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Strategic Models Based on Management and Accounting
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Download file to see previous pages Kaplan (1986) argues that if a company considers only strategic motivations and continually invests in projects with bad financial returns, it will, of course, go bankrupt. Kaplan comments that conventional DCF models based upon available data should be employed. If a new technology project shows positive net present value it should be accepted. Kaplan introduces the caveat that a DCF analysis may be mathematically complex; the proper discount rate and all related alternatives must be introduced into the analysis of new technology projects. Traditional techniques such as the DCF should not be ignored; traditional techniques should be modified to meet the evaluation demands of different projects. Management must weigh all benefits, both tangible and intangible. If there are large differences, the project should be rejected; if intangible benefits cancel out or outweigh tangible benefits, the new technology project should be acceptable to management. The evaluation model he introduces compares intangible benefits to negative NPV. His Financial Appraisal method brings the company’s strategic factors together with financial returns; once a project is accepted alternative strategic benefits are set aside. If the project is accepted only because of financial considerations, strategic factors become moot.
Kakati & Dhar (1991) concur with this assessment and add that a two-level model might also be applicable, combining financial criteria with a careful analysis of strategic criteria. This strategic planning is included in the budget along with the benefits of new technology projects. ...Download file to see next pagesRead More
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