Budgeting - IBM
is the process of evaluating potential projects and determining which are likely
to be profitable and which are not. A company's capital budget is a function
of its corporate strategy, and its effects are felt throughout the organization
long after the actual decisions are made. Because of the size and importance
of capital investments, companies must ensure that their capital budgeting decisions
are based on good information and sound analysis. For a large, multinational
corporation like IBM, there are many challenges in the capital budgeting process.
Use the "Financial Condition" section of the management discussion found in
IBM's 2001 Annual Report (see http://www.ibm.com/annualreport/2001)
to complete this exercise.
- In addition
to current operating performance, firms must never lose site of organizational
goals and the need to maintain distinctive competencies. For that reason,
firms must always be looking toward the future and ensuring success down the
road. With that in mind, what investments did IBM make in 2001 to fund future
growth and increase shareholder value?
- How does Standard
& Poor's rate IBM's senior long-term debt, preferred stock, and commercial
- Briefly describe
IBM's investment in new software research, development, and engineering. Did
IBM amortize more or less capitalized software costs during 2001, compared
to 2000? Why was there a difference?
- To analyze
the sources of specific risk, IBM uses sensitivity analysis to determines
the impact of different market risk exposures on the fair value of the company's
assets. What kind of financial instruments are included in this sensitivity
- Explain IBM's
process of sensitivity analysis.
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