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Article review relating to capital budgeting or payback method - Book Report/Review Example

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This paper attempts to analyze the article, “Petrobras Sets Ambitious Capital Budget” that pertains to the topic of Capital Budgeting discussed as part of the course. The article mentions the aggressive capital expansion plans of the Brazilian state owned energy giant,…
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Article review relating to capital budgeting or payback method
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Download file to see previous pages Further, the article also states that Petrobras is investing substantially in offshore drilling in the Gulf of Mexico region which has now become something of a risky venture in view of the Deepwater Horizon Incident.
The article’s strength lies in the way in which the reporter has culled the financial data pertaining to the firm to provide an analysis of the plans of the firm in the next few years. Considering that capital budgeting and allocation of capital for various divisions is often an indicator of the company’s priorities, the reporter has done a good job in drawing conclusions from the available data. The following quote illustrates how the company is planning to spend the huge capital investment on its expansion plans, “The staggering capital expenditures will be used primarily to develop Brazils massive offshore oil reserves in the presalt region, which is expected to be pricey and complicated due to the depth of the reserves” (Fick, 2010).
The implications of the article for global and managerial finance are that there is a lot of potential yet to be tapped in the oil fields outside of the traditional producers like the Middle Eastern countries and Russia. The point to note is that Brazil being one of the “BRIC” countries (Brazil, Russia, India and China) that are expected to power economic growth in the coming decades, has announced its intentions on aggressive expansion even as the Western countries like the United States and those in Europe (Germany, Britain etc) are cutting down on capital budgets in view of the relative scarcity of capital because of the “credit crunch”.
Hence, this move by Petrobras signifies an emerging equation among the world’s preeminent energy producers and their ability to drive the market for energy use. It is clear that the balance of power is changing in terms of financial resources as well as energy dynamics. This is something that the managers of tomorrow may well note when ...Download file to see next pagesRead More
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