Capital investment for Flight Centre Limited is to expand the building by adding a new wing. This is done in order to accommodate as many travelers as possible. This will increase the profitability of the company. Many customers will be getting their services. The services offered will also increase making the revenue rise. This will also provide enough space for customers to feel comfortable and not squeezed at all. The current profitability of Flight Centre Limited will be far much increased due to this investment. The wing will be able to generate quite a large amount of revenue. In order to achieve the best out of this investment, the proper financial arrangement should be put in place. The cost of extending the building is quite high and proper sources of capital must be defined. There should be a committee to decide on the funding of this investment. For every capital investment to be successful a proper and clear plan of how to finance it is crucial (Lock, 2007).
There are different ways of funding a capital investment. The Flight Centre Company can borrow a loan for putting up the building extension. Loans are used where the agency is needed. These loans can be borrowed from the government since their loan interest is low. The loans are normally long-term and are paid through installments. Another source of funding for this investment is direct donations. This could be from individuals or corporations or even other companies. A capital campaign is then done in order to get these donations. The campaign will explain the need for an extension of the building to convince the donors to give them money. This can generate enough money to fund the capital project. Fundraising events are also another financing aspect of this capital project. This can be organized by the company in order to raise money to fund the building extension. The company can offload its shares to get finances for this project (Wong, 2005).
Flight Centre Limited can organize fundraising event and invite its friend companies. This is also an aspect of public relations since the company should have good communication with other companies in order to get contributions from them. Flight Centre Limited should have a good reputation in order to earn enough contribution. However, there are several problems experienced by this company. The cash flows used to find out the acceptability of the capital project results from forecasts of uncertain events. These are future economic trends and expected demand for the products and services.
The current cash flows used to determine the Net present value (NPV) might be different from what happens in the future. As seen the current return on investment is 22% but this does not mean it will be so in the future especially after the extension of the company. Media can also be of contribution since it exposes negative values of the company. This will then make the company lose customers who go by the media. Another issue yet is the company politics. Every project should pass through all the necessary procedures in order to be implemented. The tendering process may take longer than expected hence delaying the project. A committee is normally formed to go through the project and evaluate it and then validate it. The committee should not be biased in any way. The project is analyzed in detail and then it is approved (Kerzner, 2009).
There are various risks involved in investing in an organization. Risk is understood as an element in the implementation of capital projects and is involved in different parts of the project life cycle. Risks that may be involved in flight center limited as it expands its business are numerous. The more rooms that are built to accommodate more people may not necessarily be utilized hence the company may run at a loss. The rooms can be expanded and the customers reduce in turn out. The company also depends greatly on contracts hence the service providers may decide to terminate their contracts due to stiff competition in the market. Other factors include change of management of the company and the new management would not be able to cope well with others. Loan repayment is also another risk which the company may experience in case of the economic recession of a country. Measures should be put in place to deal with kind of risk, for example putting in place an insurance policy that would cover that risk (Jeffrey, 2008).
Flight center limited offers services according to personal status. The competitors may decide to offer the same services at lower prices to all levels of people. This would be a great risk to the business and the clients may decide to move to other companies hence losing customers. The risks in project investments can be prevented. This can be done through risk analysis and management which involves identifying and assessing things that can put at risk a project. This helps to describe preventive measures to curb the likelihood of these factors from happening and identify ways to prevent negative effects to the company.
References
Jeffrey, P. (2008). Project Management. 6th ed. New Jersey: Pearson Education
Kerzner, H. (2009). Project Management: A Systems Approach to Planning, Scheduling, and Controlling. 10th ed. New Jersey: John Wiley and Sons
Lock, D. (2007). Project management. 9th ed. London: Gower Publishing, Ltd.
Wong, L.H. (2005). Venture capital fund management: a comprehensive approach to investment practices & the entire operations of a VC firm. Washington: Aspatore