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Main goal of a business organization - Essay Example

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The main goal of a business organization is the maximization of shareholder value which is indicated by the company's level of profitability and in turn, its ability to minimize costs. In line with this objective, the Navigation Systems, Inc. enhances its competitive advantage in the market through the purchase of an excellent global positioning system (GPS) circuit card in Germany…
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02 March 2007 Financial Management The main goal of a business organization is the maximization of shareholder value which is indicated by the company's level of profitability and in turn, its ability to minimize costs. In line with this objective, the Navigation Systems, Inc. enhances its competitive advantage in the market through the purchase of an excellent global positioning system (GPS) circuit card in Germany. The company's main goal in this purchase is choosing an alternative which will entail the least cost. The GPS circuit card costs a total of 1.5 million if paid upfront. Navigation Systems, Inc. also has the option of delaying the payment six months before the product is delivered but is required to pay an additional interest which is equivalent to the inflation rate in Germany if it exceeds 1.4%.
It is recommended that Navigation Systems, Inc. pay up front. It should be noted that the current inflation rate in the European Union where Germany is a part of is in an uptrend. Table 1 shows the inflation rate of EU from 2000 to 2006. The previous year reports an inflation rate of 2.3% which is the highest in the seven-year-period. The introduction of a single denomination in the European Union has been unable to curb the high levels of interest rates. Thus, the company expects that even if the cost of the GPS circuit card is relatively lower priced when it is paid six months before delivery at an inflation rate of less than or equal to 1.4%, this will situation will be impossible given the prevailing inflation rate. Paying up-front will entail the company to pay 1.47 million, lower than the 1.478016 at the cost at an inflation rate of 2.4% which expected by the IMF for 2007.
Table 1. Inflation Rate in EU (2000-2007)
Table 2. Option 1
Table 2. Option 2 Read More
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