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Discussion Questions for Investment Management

Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Investment Management Main | Investment Management MC Questions | Graduate MA Course

1. The discounted cash flow (DCF) techniques associated with capital budgeting include the internal rate of return (IRR) and the net present value method (NPV). What is a non-technical definition of the IRR? (See Note on IRR).

2. Define the IRR in terms of the discount rate (i.e., from the technical perspective). (See Note on IRR).

3. What is NPV? (See Note on IRR).

4. What is the cost of capital? (See Note on IRR).

5. What is the relationship between the IRR, cost of capital, and NPV? (See Note on IRR).

6. Explain the conflict between choosing investments based on the DCF techniques and the subsequent evaluations of the investments based on the accounting rate of return. (See Investment management summary).

7. What are the proposed solutions to the problem in the question above? (See Investment management and Howell & Soucy summaries).

8. Is the annuity or compound interest method of depreciation used in practice? Why? (See the Investment management summary).

9. Why do advocates of the investment management approach argue that processes need to be simplified before new investments in automation are considered? (See the Investment management, Howell & Soucy and Engwall 88b summaries).

10. What are the potential conflicts between the DCF methods and investing in automation? (See the Investment management and Howell & Soucy summaries).

11. What is a green field factory? (See the Investment management, Howell & Soucy and Shields & Young summaries). (The Saturn plant is an example. See Saturn note).

12. What is the moving baseline concept and how does it differ from the assumptions of traditional capital budgeting? (See the Investment management, Howell & Soucy and Sinason summaries). (Also see Sinason's examples).

13. Sinason (1991) argues that the moving baseline concept is dynamic while the traditional capital budgeting concept is static. What does he mean by this? (See Sinason summary).

14. Berliner and Brimson (1988) describe three types of investment strategies. Discuss these three types of investment strategy in relation to two types of risk (i.e., technological risk and market share risk), and relate the strategies to the product life cycle concept. (See the Investment management summary and the Hayes & Wheelwright 2nd summary. The Hayes & Abernathy summary is also relevant).

15. Explain the concept of the multiple attribute decision model described in the CAM-I conceptual design. (See the Investment management summary). (The Lyons, Gumbus & Bellhouse summary provides a similar approach in health care).

16. McNair, Mosconi and Norris (1989) state that management intuition is the key to successful investments. What do you think? (See the Investment management summary).

17. Engwall (1989) argues that sociointegration is the key to making the right investment decisions. What do you think he means by this? (See the Investment management and Engwall (1989) summaries).

18. Hayes, Wheelwright and Clark (1988) describe a disinvestment spiral that is associated with assuming the status quo in traditional capital budgeting analysis. What do they mean by this? (See the Investment management summary).

19. What is the portfolio investment concept? Why is this important? (See the Investment management, Engwall 1989 and Engwall 88b summaries).

20. Discuss the portfolio investment concept in relation to the three types of investment strategy described by Berliner and Brimson (1988). (See the Investment management summary and the Engwall 88b graphic. The Hayes & Wheelwright summaries 1 and 2 and Hayes & Abernathy summary are also relevant).

21. What are the main constraints or obstacles to implementing the investment management concept? Several authors discuss these problems. (See the Investment management, Engwall 1989 and Engwall 88b summaries).

22. Fill in the table below and discuss the compatibility of the investment management concepts with the concepts of communitarian and individualistic capitalism. (See MAAW's Chapter 1 for a review. The Engwall 1989 summary is also relevant).

Concept Communitarian Individualistic
Organizational structure?
Information flow?
Culture within the organization?
Investment analysis approach?

23. Discuss the product life cycle concept in relation to the investment management concept. (See the Investment Management summary).

24. Kite argues that the environmental impact of investments should be integrated into investment analysis. How do Kite's recommendations affect the discount rate? (See the Kite summary. Related summaries include Boer, Curtin & Hoyt, Bayou & Nachtman, Reinhardt and Estes).

25. How do Kite's integration recommendations affect the life cycle considerations for the product? (See the Kite summary).

26. Primrose argues that there is really nothing wrong with traditional cost management. What is the main basis for Primrose's arguments? (See the Primrose summary. See the Investment Management summary for a related argument).