CAPITAL PROJECT

Capital Project



Capital Project

Section II: Establishing Acceptability

Acceptability of the item for key stakeholders

It is important to know whether the strategy implemented regarding the stakeholders is acceptable to them or not. Typical issues need to be looked and have to be included in the expected returns and level of risk that result from the proposed options.

These key items include the returns offered to stakeholders as every stakeholder knows as to what will be the return against his investment (Briciu, 2006 223-224). Organizations that are successful have a very acceptable item to offer the stakeholders. Apart from that, every stakeholder performs a profitability analysis and cost benefit analysis, which are the basic units of measuring the acceptability (Edward, 2005, 11-43). Organizations must understand that stakeholders are willing to take a certain amount of risk, and it should be kept to an acceptable limit. This ensures investments and ultimately the organizational growth.

Organizational risk and compliance issues

Risks

The risk faced by the Hospital is the loop holes in the internal control system of the company which allows for a possible financial disadvantage to the company. However, company is also facing different financial and non- financial risk as well, but here we are concentrating on the risk of the internal control system as it poses a threat for the company in the future (Edward, 2005, 11-43).

Liquidity Risk

There are only two ways to liquidate an investment:

Wait when there is the natural end and be reimbursed by the issuer

sell the financial instrument on the market

The norm is to use the second method (Briciu, 2006 223-224). To sell a financial instrument on the market, there must be buyers. If we have a financial instrument that is traded on the market very often (or, worse that is not exchanged at all) one is exposed to liquidity risk. This means that to achieve the investment will be necessary to sell below cost compared with the "correct" market. To avoid this we need to invest only in instruments that have many daily trading.

Business risk

Business risk is the risk associated with the nature of the enterprise itself. Not all businesses are equally risky. Drilling for new oil deposits is more risky than running a commercial bank. The chances of finding oil may be slim, and only one of many new wells may actually produce oil and earn a positive return (Bindseil, 2009, 25-46). Commercial banks, however, can make bank that are secured by particular assets, such as residences or inventories. While these loans are not risk-free', they may be relatively safe because even if the debtor defaults, the creditor (the bank) can seize the asset to meet its claims (Edward, 2005, 11-43). Some businesses are by their very nature riskier than others, and, therefore, investing in them is inherently riskier. All assets must be financed. Either creditors or owners or both provide funds to start and to sustain the business. Firms use debt financing for two primary reasons. First, under current tax laws merest is a tax-deductable expense while ...