Would they be better served by evaluating investments

Reference no: EM13295102

As you described, before deciding on long term investments in new equipment, replacement equipment, a new factory, new products, or research & development projects we have to look at the cash flows to determine whether they are worthwhile. There are a number of possible analytical methods we can use including NPV, payback or profitability index but anecdotally it seems that "gut instinct" is the basis of decision-making with many small businesses. Is it due to the type of business or first-person knowledge that these small business owners have, which gives them the confidence to use this approach? Would they be better served by evaluating investments using NPV or some other method or does their small size necessitate a different type of decision-making? Could it be that they are actually doing the numerical analysis but not in a formal way that financial analysts and managers at larger companies might do?

Reference no: EM13295102

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