Question

your discussion rubric. Each week, you will be asked to respond to the prompt or prompts in the discuss forum. Your initial post should be a minimum of 300 words in length, and is due c Sunday. By Tuesday, you should respond to two additional posts from your peers Question A Explain why firms choose to decentralize and give an example. Question B Explain why NPV is generally preferred over IRR when choosing among competing or mutually exclusive projects. Why would managers continue to use IRR to choose among mutually exclusive projects? View your discussion rubric. Each week, you will be asked to respond to the prompt or prompts in the discussion forum. Your initial post should be a minimum of 300 words in length, and is due on Sunday. By Tuesday, you should respond to two additional posts from your peers. Question A

Answer 1

A: The primary reason why forms chose to decentralize is because of the fact that decentralization leads to increased level of efficiency. It should be noted that decentralization involves delegating decision making authority to lower levels of management in an organization. In this form manager at lower levels take key decisions as well as implement them pertaining to their areas of responsibility. As pointed out earlier the primary reason for decentralization is increased level of efficiency. Decentralization brings with itself decision making freedom and this empowers local managers. The advantage of this is that local managers can make better decisions using the local information that is available to them. Secondly it will also enable local managers to provide a timely response to a situation involving changing conditions. Lastly the local and lower level managers are trained properly and have high levels of motivation and this allows the top level managers to focus more on strategy development and strategy implementation.

B: NPV is generally preferred over IRR when choosing among competing or mutually exclusive projects. This is because of the fact that IRR is based on a flawed assumption that cash flows of a project are reinvested at the internal rate of return. This is a problematic assumption as in the real world there is no guarantee that opportunities that are equally profitable (i.e. same as IRR) will be available as soon as cash flows occur. IRR is based on this assumption which does not hold ground on practical terms and in the real world. NPV, on the other hand, does not have such a problematic assumption as its basis and hence is a superior technique on a practical basis. The assumption of NPV is that reinvestment occurs at cost of capital and this assumption is both realistic as well as conservative. Managers continue to use IRR to choose among mutually exclusive projects because of the fact that in finance decisions are mostly made using rate of return as the basis and not absolute values as basis. Secondly interpretation of IRR can be done easily by all parties involved in decision making. Lastly IRR can be compared to current borrowing rate, cost of capital, etc. and hence managers continue to use it.

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