Describe Diversity, Equality, Inclusion and Participation Essay Example for Free

Describe Diversity, Equality, Inclusion and Participation Essay Diversity refers to our differences such as culture, beliefs, values, views and life experiences. The concept of diversity is to accept, respect and embrace our differences. When people with these differences unite and share the same group or organization we see a diverse environment. Working in a childcare setting, we have the potential to work with an abundance of diversity. This can be very rewarding but can also pose challenges. Positively, we have the opportunity to promote the sense of individuality, sense of pride and belonging by providing a safe and nurturing environment. Discussing each other’s differences is a great way to learn and become aware of the differences in the world. One example of promoting diversity is to display the word â€Å"welcome† on the door in all first languages spoken in that classroom or even learning how to say hello in each language. The challenges are learning how ensure equality and eliminate discrimination. Introducing children at an early age to diversity will have an impact on their acceptance of others who are different from them. Diversity can also come in the form of race, gender, sexual orientation, socio-economic status, age, physical abilities and political beliefs. Equality Equality is the term for equal opportunities. Whilst supporting diversity and respecting differences everyone is offered the same services and programs. All children and families have an equal chance and equal right to participate or not to participate regardless of any differences such as physical disabilities or cultural beliefs. Practitioners have a duty to ensure that there is equality in their classroom. A child who has a learning disability should not be stereotyped with assumptions that he or she is not capable and therefor does not receive equal opportunity in classroom activities. Discrimination is the result of not practicing equality, for example, a child cannot be left out of a school outing because they don’t have transport to accommodate his wheel chair. Discrimination due to inequality can be very detrimental to a child’s emotional well being. A child can develop low-self esteem, low confidence, feel unwanted and loose sense of belonging. The equality act of 2010 legally protects people from discrimination in organizations and society. Some provisions relating to disability include extending protection against indirect discrimination to disability and harmonizing the thresholds for the duty to make reasonable adjustments for disabled people. This act will help to protect the children in school settings and into adulthood. Reference: Equality Act 2010: guidance, publishes 27 February 2013, https://www. gov. uk/equality-act-2010-guidance Inclusion Inclusion is the practice that every need is met for every student in their learning setting. Inclusive education allows children with disabilities to learn along side children without disabilities. This type of educational practice differs from having children with special needs secluded to special schools and classrooms. It allows children with disabilities to feel as an equal member of the classroom, which will build self-confidence and teach social skills. Schools need to ensure that they meet all needs by having resources and equipment to aid the students and help them to join as many activities as possible. For example braille books for children who are blind, providing wide doors, ramps and disabled toilets, speech therapist and physical therapist. When children have the opportunity to use these services they will more likely achieve their educational goals and feel less different from their peers. Practitioners could aid children in their classrooms by learning as much as possible about any disability a child in their care has, for example if a child in their classroom is hearing impaired, learning a few basic sign language words such as â€Å"lunch† â€Å"outside† â€Å"toilet† could help the child feel more part of the classroom’s daily flow. Reference: Wikipedia, Inclusion (education), 22 October 2013, http://en. wikipedia. org/wiki/Inclusion_(education) Participation Participation is the act of participating and being involved in activities, decisions, planning and sharing. Participation is important for the children as well as the parents in school settings. When parents and children are involved in decision-making it allows them to feel connected to the school and feel like their voice is being heard and wishes met. Children feel that their opinions and feelings matter, this is important to social skill development, as they will feel apart of the school community. Children who participate in school activities such as sports gain self-confidence and team building skills. Communication skills improve, stress is relieved and friendships build as children learn to trust and depend on their peers. Supporting participation could be to invite parents into the class to share their child’s favorite storybook from home and be a part of that day’s circle time. The child will gain a sense of pride as they sit beside their parent as they contribute to circle time. Another example is the children could take turns bringing home a â€Å"letter bag† where they find objects from around their home that begin with the â€Å"letter of the week†. The child and parent can work together finding the objects and the child can share it in class the following day. Reference: Participation works partnership, http://www. participationworks. org. uk/topics/education

artificial intelligence Essay -- essays research papers

Artificial intelligence or Al for short capability of a computer to perform functions that is normally associated with human intelligence, such as reasoning, learning or self-improvement. Its concept requests a lot more than present information to the user; it requires that the machine is not only able to store and manipulate information but also to deal with its "meaning". AI is what we call understanding, a combination of computer science, physiology and philosophy. The element that the fields of Al have in common is the creation of machines that can "think". In order to classify machines as "thinking", it is necessary to define intelligence. To what level does intelligence consist of, for example, solving complex problems, or making generalizations and rel...

Economic Analysis of Crop Diversification Essay

There is a dramatic change in the earning, spending and saving pattern of the people of India in the post reform (economic) period that is post 1991. During this period, income generating mechanism in this country underwent massive changes. With a sustained economic growth, rising per capita income along with an ever increasing population, the dietary pattern in India is also changing very fast. The Indian food basket is diversifying in favour of high value food commodities like fruits, vegetables, dairy products, poultry products and fish products from staple food such as rice, wheat and coarse cereals. This raises a challenge to Indian agriculture. On the other hand the modern agriculture dominated by chemical and irrigation intensive farming system has not only raised productivity but simultaneously has also resulted in soil erosion, water contamination, pesticides poisoning, land degradation through water logging and soil salinity, depletion of bio-diversity, etc., forcing farmer s to apply ever-increasing doses of fertilisers and to make water supply available on a continuous basis, in order to maintain the productivity levels. This again raises another challenge to Indian agriculture. It may not be wondering if we assume that organic farming system may generate such situation to address both the challenges mentioned above. This paper is concerned with an analysis of crop diversification under organic and inorganic farming in West Bengal. Crop diversification is different from the concept of multiple cropping or succession planting over the growing seasons. Moreover, it implies the use of environmental and human resources to grow a mix of crops with complementary marketing opportunities. Thus, it implies a shifting of resources from low value crops to high value crops such as fruits, vegetables, etc. The concept of crop diversification in globalized market of agricultural produce refers to increase the total crop productivity in terms of quality, quantity and monetary value under different specific agro-climatic situations across the world. There are two approaches to crop diversification in agriculture. First is horizontal diversification, which is the primary approach to crop diversification in production agriculture. The approach takes place through crop intensification by adding new high-value crops to existing cropping systems. Thus, the approach facilitates the improvement of overall productivity of a farm or farming economy of a region. The second approach is the vertical diversification. Under this approach, farmers and others add value to products through processing, regional branding, packaging, merchandising or other efforts to enhance the farm-product. The opportunities for crop diversification may vary depending on risks, opportunities and the feasibility of proposed changes within a socio-economic and agro-economic context. However, crop diversification through substitution of one crop or mixed cropping / inter-cropping may be a useful tool to mitigate problems associated with aberrant weather to some extent, especially in the arid and semi-arid drought-prone / dry land areas. Impact of crop diversification Crop diversification is intended to practice of growing more than one crop (or enterprise) in any year to increase financial and biological stability of the farm. In the agricultural context, diversification can be regarded as the re-allocation of some of a farm’s productive resources, such as land, capital, farm equipment and paid labour, into new activities. These can be new crops or livestock products, value-adding activities, provision of services to other farmers, etc. On the other hand, diversification of agriculture refers to the shift from the regional dominance of one crop to regional production of a number of crops, to meet ever increasing demand for cereals, pulses, oilseeds, fruits and vegetables, etc. It aims to improve soil health and a dynamic equilibrium of the agro-ecosystem. Crop diversification takes into account the economic returns from different value-added crops. Crop diversification can better tolerate the ups and downs in the market value of farm produ cts and may ensure economic stability for farming families of the state. The adverse effects of aberrant weather, such as erratic and scanty rainfall and drought are very common in a vast area in agricultural production of the state. Incidents of flood in one part and drought in the other part are a very frequent phenomenon in the state. Under these aberrant weather situations, dependence on one or two major cereals (rice, wheat, etc.) is always risky. Diversification in agriculture has tremendous impact on the agro-socio-economic condition and uplifting resource-poor farming communities. It generates income and employment for rural youth year round for the ultimate benefits of the farmers in the state. It implies the use of local resources in a larger mix of diverse cropping systems and livestock, aquaculture and other non-farm sectors in the rural areas. Problem statement The yield as well as farm income is the essential part for crop diversification for the farmer of an agricultural based economy like West Bengal. Normally, the farmers diversify farm enterprises to meet the cash requirements of the family and to mitigate risk associated with mono-cropping, depending on conventional wisdom over the years. The crop diversification in the state is also considered with greater emphasis from the view point to price response, market infrastructure, availability of resources and public interventions (price and credit policies of farming business, research and development in farming activities, etc.) in agriculture. The judicious crop mix has facilitated increased farm incomes. It has also contribution towards the utilization of under employed resources to mitigate seasonal and under unemployment of rural labour force. The crop diversification has also helped to reduce risks and uncertainties in crops yields due to climatic and biological vagaries. Thus the study was conducted to analyze the extent of crop diversification at different levels of farm size as well as crop growing seasons in West Bengal for both inorganic and organic farming systems, commonly followed by the farmers in the state.

Study On Investment Appraisal And Takeovers Finance Essay - Free Essay Example

Sample details Pages: 14 Words: 4235 Downloads: 3 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Investment analysis is very important as it establishes cash and other resources are invested in profitable projects and identify some risk which might arise from investment and measures to eliminate the risks. Getting the right choice of a project to invest is crucial, the management need to have the skills to make the right decision which will maximise stakeholders profit. Most of the companies have lost their reputation and even liquidated due to wrong managerial decisions on what investment to embark to, hence a proper and less risk method of investment analysis is crucial in this role. Don’t waste time! Our writers will create an original "Study On Investment Appraisal And Takeovers Finance Essay" essay for you Create order This is an academic report analysing Jebb PLC, a predator (acquirer) company proposed to takeover a target rival company. In this report, I as a senior Financial Manager in large listed company, I have analysed business investment feasibility, to assess whether it is worthwhile to make a companys investment decision. The analysis has covered reasons behind takeovers, methods and potential effects of takeovers. Also I have looked at the methods of investment appraisal, nature of gearing, risks and cost of capital. 2.0 TAKEOVERS Jebb PLC has decided to embark into takeovers as one of its growth strategies to increase the wealth of shareholders. Takeovers can be simply defined as the purchase of ones company (the target) by another (the acquirer, bidder or predator). In takeovers basically a stronger company takes over a weaker one. The general driving force for Jebb Ltd takeover has been enhancement of shareholders value, bringing cost saving and efficiencies. However the reasons can be analyses in length here under as follows. 2.1 Reasons behind takeover Economies of scale This is simply reductions in the average cost of production, and hence in the unit costs, when output is increased. Oxford Dictionary of Business and Management 4th Ed. When the cost of producing a unit of good falls as its output rate increases, economies of scale exist. Michael Parkin (2003) p. 189 In this context the fixed operating costs are being spread over a larger production volume, equipments are being used efficiently with high volume of production. Economies of scale arise from specialization and division of labor that can be reaped more effectively by firm coordination rather than market coordination. Michael Parkin et al.Economics 5th ed. (2003) p. 189. Following this acquisition Jebb Plc expect cost reduction and hence achieve of economies of scale (scale effect) In the economies of scale to work out Jebb Plc would expect one of the following to happen. Negotiation of lower prices with suppliers for larger orders Combined pro duction processes, or operation on larger but fewer sites to save operating costs Saving in administration, distribution, marketing or research and development costs. . Growth, Empire building and market penetration by accessing to new markets, may be achieved at a much quicker rate by buying existing operator Avoiding higher start up costs Barrier to entry in industry or country may be avoided Access to skilled workers, hence performance maximisation Brands/patents a trademark which increases companys reputation. Complementary resources Here there are mutual benefits, the predator company will provide the necessary ingredients necessary for a small company (target) success. In this situation a small company may have unique product/services but lack the managerial, engineering, knowhow and many more which requires a target company to produce and market its product/service in a profitable way. (Richard A. Brealey, et al pg. 886). Acquire technology and RD expertise 2.2 Potential effects of takeover The process of takeover has both positive and negative effects for both parties, i.e. predators side and to a target company. In this case I will base on the potential effects which might arise in Jebb Plc as acquirer and few for a target company. On positive side the offer given by Jebb Plc to its target company will Increase production level, thus increase of profit margin and maximisation of shareholders wealth and dividends. This growth and shareholders increase in wealth is possible due to synergic effect, by sharing expertise, cost saving production costs per unit and increase in companys reputations, advantage in sharing technology and many more. As we have seen the aim of takeover is to maximise shareholders wealth however this is not always the case. A survey conducted shows the following are some of the factors contributing to M A fail. Target management attitudes and culture differences Lack of post acquisition planning Lack of knowledge of the industr y or target company Poor management practices in target company Little or no experience of acquisitions. (Per Cooper and Lybrand survey in Merger and Acquisition conducted in 1992) The takeover predictions might prove disaster due to hostility takeover process, whereby a predator company is forced to overpay a target company in a bidding process so as to win a bid. A simple recent example here is a takeover between Kraft a US Food Company and Cadbury a British-based confectionery company, which took place in March 2010. Initially Kraft valuing a company at  £9.8bn this were rejected by Cadbury, it went up to  £10.5bn still were rejected and the last deal were made at  £11.5bn. The overpay has increased Kraft debt after had to borrow  £7bn to finance the takeover, this can further increases Interest rate. Available at: https://news.bbc.co.uk/1/hi/8467007.stm accessed on 10 April 2010 Normally this happens when a company is losing sight in hostile takeo ver as a company focusing in winning. Another negative effect is time consuming in the course of takeover and a company can even step aside in concentrating in running its current business, and dealing with takeover process. Redundancies can be one of the disadvantages, as not all staff will be taken to start a new project, especially top posts as there is likelihood of having two experts in one post, one from target and the other from acquirer companies. This can be seen from my example as it has happened in Cadbury were Chairman Roger Carr, Chief Executive Todd Stitzer and Chief Financial Officer had to resign, this were followed by Kraft announcement that it planned to close the Cadbury factory at Keynsham with the loss of 400 jobs. Available at: https://news.bbc.co.uk/1/hi/business/8453433.stm Accessed on 12 April 2010. Also a company should expect increasing running costs at the beginning which will be used in business reengineering process, and staff training es pecially when is to do with deliver in a new technology. Most of the disasters occurring in MA even in many mergers which seem to make economic sense are due to Management failure (as we have seen according to Per Coopers and Lybrand survey 1992) to handle the complex task of integrating two firms with different production processes, accounting methods and corporate cultures. A simple example here is the merger of three Japanese banks to form Mizuho Bank. These tree Largest Japanese banks predicted that the bank would lead the new era through cutting-edge comprehensive financial servicesÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.Within three months of operation after its merger IT problem occurred, due to different supplier of its computer system, the system couldnt link they then decided to connect the three different systems together using relay computers. This was disaster as some 7,000 of the banks cash machines did not work, 60,000 accounts were debited twice for the same transaction and a lot more problems. The Economies April 27, 2002. p. 72 Big Bold, butÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦. One of the objectives of Mizuho was to exploit economies in its IT Systems. The fiasco illustrate dramatically that it is easier to predict such merger synergies than to realize them. Motivations and involvement of staff in the whole process of takeover is of paramount important so staff can buy the idea, as the value of the most business depends on human assets(managers, skilled workers, scientists, and engineers). If these people are not happy in their new roles in the acquiring firm the best of them will leave. (Richard A. Brealey, et al pg. 884). One Portuguese bank (BCP) learned this lesson the hard way when it brought an investment management firm against the wishes of the firms employees, when the entire workforce immediately quit and set up a rival investment man agement firm with a similar name. Occasionally a takeover does gains but buyers nevertheless lose because it pays too much. This happen especially in unforeseen circumstances when Predator Company underestimate the cost of renovating old plant and equipment, or it may overlook the warranties on a defective product and other costs. At the end of the day all these costs will probably fall on the buyers. I have analysed the reasons behind takeovers, and the methods by which such takeover may take place together with the potential effects of takeover, with some real life example. Jebb Plc should learn a lesson from what has happened to other companies in a takeover exercise, by making sure realistic and better informed decision is made on acquiring and disposing of assets to avoid any disaster. 3.0 METHODS OF INVESTMENT APPRAISAL Investment can be defined as the purchase of creation of assets with the aim of making profit in future. Economists define investment as the addition to the capital stock of the economy factories, machines offices and stock of materials, used to produce other goods and services. Alain Anderton Economics (1999) 2nd ed. Investment appraisals are conducted as an assessment tool to see whether it is worthwhile to embark into a certain investment. Economies Investment decision making is one of the most critical and key area in an organisation. The decision in opting what project a company should go for which will earn the firm more than amount employed over a period of time needs managerial skills to handle. Jebb Plc need to assess outflow and inflow of funds, the lifespan of the investment, the degree of risk attached and how much will it cost a firm to obtain funds, with the maximisation of shareholders wealth as the key business objective. The investment appraisals conducted by Jebb Plc will ensure the cash and other resources are invested in the most profitable and less risk projects. Any arising risk(s) will be considered and measures will be taken to eliminate the risk and/or reduce the impact. In order to achieve a profitable and economic sound project various methods on investment appraisal are used. These methods are categorised into two, the traditional methods includes payback period (PP) and Average Rate of Return (ARR) and the second method is discounted cash flow (DCF), this one includes the Internal rate of return(IRR) and Net Present Value (NPV) TRADITIONAL METHODS Payback Period (PP) Payback period measures the length of time taken for a project to pay back /repay its initial capital cost. A company uses the method in deciding between two or more competing projects by taking the one with shortest payback period. The method is used as an initial screening method. Mathematically a PP can be calculated as: Payback Period = Initial payment / Annual cash flow The method is the most widely used worldwide than any other method according to number of literatures. The research has proved most of UK firms prefer the method. (See fig: 1, a comparative study of appraisal techniques used by 100 large UK businesses Upchurch, 1988 p.p.337). The reasons behind this are as follows: Simple method available to compute It acts as proxy for risk Provides a crude measure for liquidity-can be useful in a business where liquidity is a problem. The problem with most of investment appraisal methods is risk in capital budgeting, as most of the data used in dec ision making are based on estimation. Most of the data are derived for the later year of a project further from todays value of cash flow this make it less reliable. In a payback period in this respect it tells a manager how soon the project cash inflow covers its cash outflow. The quickest the money can be recovered back the better the project to embark to and most of UK managers are rewarded after a quick return. In this case Jebb Plc need to be risk averse and will decide on the project which have lower value for PP. Despite of favourability to PP there are strong arguments against it as follows: Cash flows are regarded as pre-payback or post payback, but the latter tend to be ignored. It ignores the time value for money. This is sufficiently serious for it to be rejected as an indicator of whether a project increases the value of a company, it takes no account of the effect on business profitability, its sole concern is cash flow. Ignores the risk of future cas h flow Takes no account of what is happening with interest rate Accounting Rate of Return- ARR Accounting Rate of return also called ROCE and ROI expresses the profit arising from a project as a percentage of the initial cost. The method look at annual accounting profit rather than cash flows. The calculation has shown differently in different textbook, however one of the most common approach is this one: ARR = (Average annual revenue / Initial capital costs) * 100 The average investment is given by: (Cost + disposal value) / 2 The rate of ARR obtained using the method is compared with a pre-determined hurdle rate and the project with greater return would be acceptable. Example if the ARR method gave ARR of 17% and the firms hurdle rate was 13% then a project does worth. The method can also be used to compare the worth of more than one project, by opting the one with the highest rate of return. Advantages of AAR As we have seen with pp, the chief advantage of ARR is simplicity. The percentage value given make it easier for business planner to understand, and make it easier for manager to understand It shows investment profitability The value in % can easily be compared with hurdle rate r with the companys existing ROCE and to compare mutually exclusive project. It consider all cash flows over the life of a project (unlike PP) Disadvantages of ARR Despite its usefulness ARR method has got a number of criticisms as follows: Uses accounting profit (and not cash) which can be manipulated (e.g. by changing assumptions about scrap value and hence annual depreciation charges. Uses average profits therefore does not take into account the timing of profits (earlier profits may be preferred to later ones) Ignore qualitative aspects of decision. There is no definitive signal given by the ARR for managerial decision whether to invest or not. The lack of guide for managers makes it subjective rather than objective. Doesnt consider how long recover in initial investment and cost of finance may take. DISCOUNTED CASH FLOW (DCF) We have seen Traditional methods of investment appraisal which are PP and ARR. Now I will discuss DCF, the differences between this with the earlier methods are its consideration of the time value. These two techniques take account of all the costs and benefits (in cash terms) over the life of project and take into account the timing of the cash flows and benefits over the project life. As with the payback method, DCF analysis is based on cash flows not the accounting profit or losses. The timing of cash flows is taking into account by discounting them to a present value (PV) Internal Rate of Return (IRR) IRR is the annual percentage return achieved by a project, at which the sum of the discounted cash inflows over the life of the project is equal to the sum of the capital employed. OR It can be defined as the rate of interest applying to a project at which its net present value is precisely zero. The calculation shows us the break-even financing cost. The method in some senses seems to be simplest of the technique to understand. However it is the most difficult to cope with mathematically. A number of text and surveys has shown that, practically IRR method is more popular than the NPV method. This is said may be IRR is straightforward. Decision to accept a project is made when IRR is greater than a companys cost of capital or target rate of return. Disadvantages of IRR Notwithstanding its popularity in the business world, IRR bring about many problems than a practitioner may think. IRR gives unrealistic rates of return, this is the main problem of IRR. So unless the calculated IRR is a reasonable rate of reinvestment of future cash flows, it should not be used as a standard for comparison to accept or reject a project. Moreover IRR method may give different rates of return. Also IRR cannot be used to rate mutually exclusive projects. Net Present Value (NPV) NPV is a the Investment Appraisal tool/technique, where cash inflows expected in future years are discounted back at the appropriate discount rate to their present value. NPV has also been defines as The difference between the present value of the cash inflows and the present value of the cash outflows associated with an investment project (McGraw-Hill Ryerson 2001). A positive NPV provides cash flows from the Capital investment which yields a return in excess of the cost of finance/capital. Jebb Plc will treat +ve NPV as an attractive project which will help in decision making. If the NPV is -ve, cash inflows from the capital investment will yield a return below the cost of finance/capital from a finance perspective, the project is unattractive. If the PVC is exactly zero, cash flows from the capital investment will yield a return exactly equal to the cost of finance/capital, the project is therefore about financially attractive. Jebb Plc will use NPV as one of i nvestment appraisal tools to measure how much value is created or added today by undertaking an investment. In this technique Jebb Plc will accept to embark into a project if the net present value is positive and likewise rejected if it is negative. For mutually exclusive projects Jebb Plc will accept the one with the highest NPV value to maximise shareholders wealth. Advantage of NPV The following are some of benefits of using NPV which will be considered by Jebb Plc as an aid in decision making. NPV recognises the time value of money reflected in the discount. This is a key concept in corporate finance. It must be recognised that  £20,000 received today is worth more that  £20,000 receivable at some point in time in the future because  £20,000 received today could earn in the intervening period. This is known as the time value of money concept. The technique takes into account the risks involved in an investment through expected cash flows and/or discount rate. NPV offers a degree of flexibility and depth, since the equation can be adjusted for inflation and can be used with other financial tools such as Scenario analysis and the Monte Carlo simulation. Take account of both amount and timing of cash flows over the whole life of the project Has a direct relationship to shareholder wealth (positive NPVs increase it, negative ones decrease it). Disadvantages of using NPV Despite the above advantages, NPV have a number of problems of which Jebbs Plc needs to be aware. Here are some of the problems:- NPV looks at cash flows and not at Profit and Losses. NPV is highly sensitive to discount percentage, this makes it difficult to identify an appropriate discount rate. Choice of discount rate is one of the critical factors in NPV calculation the other factor is Quality of forecast cash flows. Using a standard discount rate where all projects are discounted using a standard rate, despite their different risks, may undervalue or overvalue the project, decreasing the overall accuracy. NPV does not compare absolute levels of investment. All in all DCF method is preferable to either PP or ARR because DCF takes account of the time value of money, and thus will maximise shareholders wealth. And NPV is the most acceptable technique compared to others. 4. GEARING Jebbs Plc investment will only be worthwhile if the expected return on capital employed will be greater than the cost of capital. The cost of capital is the return to the providers of finance to a business. Cost of capital can also defined as the cost of capital is the rate of return that a company has to offer finance providers to induce them to buy and hold a financial security. This rate is determined by the returns offered on alternative securities with the same risk Arnold, G (2008) Corporate Financial Management, Harlow: FT Prentice Hall Jebb Plc needs to make the right decision when taking a loan to finance its project by reducing a cost of capital and hence reducing gearing ratio. The gearing ratio this is the percentage of capital financed by debt and longtime finance. The higher the gearing, the higher the dependence on borrowings and long-term financing. And the lower the gearing ration the higher the level of dependence on equity finance. Before we see the p otential effects of higher gearing on perceived risk and cost of capital lets see 2 schools of thought in capital structure Theory of Capital Structure-2 School of thought There are two schools of thought: Traditional-Traditionalist believes that capital structure is very important That business should seek to establish the optimal mix of debt and equity (optimal capital structure), where the cost of capital is minimized and the value of the business is maximized. Modernists (Modigliani and Miller-MM) theorem believe capital structure it is irrelevant. Capital structure-Traditionalist view It regards the cost of capital to be cheaper than equity, following a lower risk for the borrower and tax advantages for the company. This implies that the overall cost of capital can be reduced by increasing the level of borrowing (of gearing). However as the level of borrowing increases the return required by ordinary shareholders also increases to compensate for the higher level of financial risk they have to bear. At low level of borrowing the benefits of raising further debt (cheap source of finance) should outweigh the costs of doing so (increased return to shareholders and existing lenders) For highly geared companies, the costs of further increases in debt will outweigh the benefits. Capital Structure Modigliani and Miller MM argue that the benefits from raising debt finance are exactly offset by the increased return required by shareholders over the whole range of borrowing. Therefore the overall cost of capital remains constant at any level of gearing and there is no optimal capital structure. Capital structure is irrelevant and changes in it do not affect the value of a firm. Modigliani and Miller (1958). The following are assumptions lied behind MM theorem. There are no taxation There are no costs involved in changing capital structure such as issue and dealing costs. There is one rate of interest that applies to both borrowers and lenders. In addition MM assumed that the capital markets are efficient and perfect. The first assumption is the most critical and led MM to revise th eir theory after criticism in 1963 to incorporate corporation tax. To conclude the link between cost of capital and gearing level is not direct and proportional. A company should look into all the associated factors like tax implications, risk, bankruptcy, agency costs, cost of serving the debt, in deciding its capital structure. In the real World at low level of borrowing the cost of capital will decline and gearing increases. Eventually at higher levels of gearing, the cost of both debt and equity will shoot up due to bankruptcy and agency costs, causing the overall cost of capital to rise also. Atrill, P (2009) 5TH ed. Financial Management for decision Makers, Harlow: FT Prentice Hall Potential effects of higher gearing The higher the ratio of debt to equity the riskier the company is from the ordinary shareholders point of view. Some investors might decide to withdraw their investment if the company has high gearing as it rating will go down. Agency costs involved in monitoring and controlling actions of manager to avoid company experiencing financial difficulties. Tax exhaustion: The task benefit relief will be lost. If the company has very high gearing due to lack of taxable income to offset against the tax relief and also affecting the operating income. CONCLUSION Capital budgeting is a crucial managerial tool. Jebb Plc is required to choose investment with attractive and sound cash flows and rates of return. Jebb Plc will use capital budget to evaluate, compare and select attractive project. The investment Appraisal techniques will also help Jebb Plc management to know whether the project under review is attractive one risky one or a safe one. In this case NPV is recommended however should be seen as a starting point in any decision making rather than the decision by itself. In choosing these techniques Jebb has to consider both financial and non financial factors. Jebb will also make the right informed decision when taking a loan to finance its project by reducing a cost of capital and hence reducing gearing ratio. This will reduce risks as borrowed fund is attached with interest which has to be paid irrespective of business performance. REFERENCES BBC News Online Richard Pettinger: Investment appraisal- managerial approach. Neale, B and T McElroy (2004) Business Finance a Value-Based Approach Arnold, G (2008) Corporate Financial Management, Harlow: FT Prentice Hall The Journal of Finance Vol. XLVI No. 1 March 1991 Michael Parkin et al.Economics 5th ed. (2003) Alain Anderton Economics (1999) 2nd ed