Being a manufacturing company and as the manager concerned with asset financing and maintenance have been allowed to acquire souvenir branding equipment as a backup of the already existing machine due to the surge in the product demand. I had decided to acquire a higher number producing asset that can give out at least twenty thousand souvenirs in a month. Despite all the progress and the gain so far I have the challenges that are meant to bar me from just bringing in the product. These challenges include:
The firms’ current earnings. This is a process of looking at the cash flow to the equity that does depict the total earnings after all the interest expenses. The product that is brought should have the capacity to make the organization more returns than the already existing asset.Net income realizable should be considered than the one that is already gotten. The management team should be convinced of the total sales that are likely to be gotten from the acquiring of the asset. This is a challenge and it has to be addressed when an organization is expanding its assets base.
The amount that the firm is investing for future growth creation. The product that is being brought to the organization’s assets base is a calling for future growth and development and is should lead to that. Introducing this product to the company is hard because it must show the potential to grow the firms from all perspectives in the future.
Externalities. This refers to the effect of the asset on other projects. The kind of externalities that are realizable from the introduction of the new asset will depend on whether the product is a complement of another existing asset or a substitute of the same. If the asset is meant to be a compliment then a positive externality shall follow and if it’s a substitute for an already existing it shall lead to realization of a negative externality. The introduction of an asset such as the souvenir branding system in the firm will be challenged by the realizable externality.
An assets introduction in to the organization is also challenged by the uncertainty of the future profitability of the same. If the future gains are not considerable enough to make the absorption of the asset worthwhile, then its incorporation into the company assets shall be barred by this. An asset that is likely to give more satisfaction and a greater deal of profits will be taken into the company assets in an easier manner than the one which is meant to lead to a reduction in profits in the long run.
Risk assessment is also a factor that need to be looked at when it come to estimation of the cash flow that is realizable from the attaining of new asset such as the souvenir branding equipment that my company is investing on. The most likely to be considered risks are the:
Stand alone risks: This is risk that is likely to be realized from the acquiring of an asset if it were the only of the particular company and that has no external shareholders attached to it. This is a risk that does not take into account the organization and the diversification of its shareholders. The likeliness of such a risk being realized from the asset makes its acquiring troublesome and it does discourage the organization and makes it hold back for a little bit of time.
Corporate risk. This is risk that is meant to give a picture of the overall assets contribution of effect to the stability of the corporate earnings. It also does take into account of other assets linked to the organization and the co relationship that does exist between the asset and the diversification that is within the contest of the firm. If an asset is going to lead into the rise in the corporate earnings its more likely to be absorbed as compared to the one that is going to lead to a reduction in the stability of the overall corporate stability.
Market risk. This is risk that is meant to reflect the overall effect of the acquired asset to the general portfolio of the stock that the company is holding at one point or the other in life. More so it takes account of the stockholders other assets and this is dependant of the asset and its stock market correlation. A positive correlation shall at most cases lead to an easier route that is followed when deciding of its acquisition.