Royal Philips Corporation is an incredibly diversified health and welfare company that is focused on improvement of people’s lives via meaningful innovations and development in Consumer Lifestyle, Healthcare, and the Lighting sector (Philips’ Gloeilampenfabrieken, 2011). It is a Company that is headquartered in Netherlands but has various branches across the entire globe. The organization is deemed as a leader in acute care, home healthcare, and cardiac care; proficient lighting solutions and contemporary lighting applications; as well as portable entertainment facilities, male grooming, and shaving equipment, and the oral healthcare. The Company has survived intense competition from the rivals due to greater focus and utilization of contemporary innovations and advanced capital projects.
Recent Capital Projects for Philips Company
Philips stands a better chance of remaining relevant in the market due to various innovation-based capital projects it has recently initiated. It has unveiled innovative products in health and wellness, personal care, coffee, lifestyle entertainment, and domestic appliances. One of the recent capital projects for Philips is the introduction of HomeCooker. This is a new form of kitchen appliances to have ever been produced. It is a multi-functional facility that is used for food preparation and cooking (Philips’ Gloeilampenfabrieken, 2011). This means that one is capable of preparing homemade meals efficiently without any mishaps.
Another capital project was based on the act of enhancing its long-term audio framework. This was ascertained through the establishment of contemporary Lifestyle Entertainment devices such as the Philips Fidelio Wireless Hi-Fi. This was Philips’ critical solution for moving towards a high definition wireless music in various devices ranging from Apple, tablet, laptop, or Android (Philips’ Gloeilampenfabrieken, 2011). This was in line with a capital project regarding Philips Original Radio that combines an advanced design and technology with greater inspiration from the original Philetta 254 that was earlier launched in the year 1955.
With regards to the aspect of Oral Healthcare, the latest project was based on the production of Philips Sonicare PowerUp. It is a device that provides an easy way of achieving an effective and a gentle clean from the leading dental professionals. This is in line with the introduction of a new Styleshaver. This is an advanced 3-in-1 hair styler that assists men to tap their personality through achievement of handsome looks with few tools (Philips’ Gloeilampenfabrieken, 2011). The device enables men to trim, shave and style their hair with a single product. It creates any form of facial style easily and quickly.
Finally, Philips Corporation has also indulged in the production of efficient equipment for handling coffee. The first one is Saeco Exprelia Evo that is regarded as an automatic espresso device for making Cappuccino Perfetto and many other kinds of coffee (Philips’ Gloeilampenfabrieken, 2011). In addition to this is a device termed as the Senseo Twist that is specifically designed for customers seeking various coffee choices.
The Project Assessment Methods that should have Been Used by Philips to assess its Capital Projects
The project assessment methods that should have been employed by Philips to assess its capital projects encompass the IRR (Internal Rate of Return), payback, NPV (Net Present Value), and ARR (Accounting Rate of Return).
IRR
The internal rate of return refers to a metric that is often utilized in capital budgeting to measure the profitability of prospective investments. IRR is merely a discount rate making the NPV of the entire cash flows from a particular project and equals to zero (Babusiaux & Pierru, 2001). The advantage of this method is the fact that it highlights the accrued returns on the invested capital. Conversely, its primary advantage based is that it at times poses conflicting answers for mutually exclusive projects.
NPV
NPV refers to variation between the current value of cash outflows and cash inflows. It is a medium that is utilized in capital budgeting for making an analysis of the projected profitability ratio of a given investment project (Ramsey, 2001). The main advantage of this method is that it depicts a direct measure with regards to the stockholder’s dollar contribution. In contrast, it is disadvantaged by its failure to bring out an exact project measure.
Payback
Playback period refers to a period time that is required to recuperate an investment cost. A given investment’s payback period is an essential factor in determining whether a given firm can undertake a certain project (Alesii, 2006). The payback tends to ignore the fund’s time value as compared to other capital budgeting frameworks. The primary advantage of playback is based on its simple nature that enables most companies to use a group of employees with diverse backgrounds to initiate a cognitive evaluation of capital projects. On the other hand, the methodology is disadvantaged by the fact that it tends to ignore fund’s time value. The project’s cash inflows can be irregular in nature with minimal returns.
IRR
ARR is regarded as the amount of returns or profits expected by an individual based on the initial investment. It is a medium that sub-divides the standard profit ratio by the original investment so as to get an expected return (Ramsey, 2001). Accounting Rate of Return does not take the time value of funds into consideration at all. It thus means that the final returns can be unworthy as compared to the ones that are currently taken in. The ultimate advantage of AAR is that it sets basis on other accounting information, hence, eradicating the necessity of using other reports to determine ARR. Its disadvantages comprise the aspect of ignoring the time value of money, the investment cash flows, as well as the consideration of the project’s terminal value.
- Alesii, G. (2006). Payback Period and Internal Rate of Return in Real Options Analysis. The Engineering Economist, 51(3), 237-257. http://dx.doi.org/10.1080/00137910600879148
- Babusiaux, D. & Pierru, A. (2001). Capital budgeting, investment project valuation, and financing mix: Methodological proposals. European Journal Of Operational Research, 135(2), 326-337. http://dx.doi.org/10.1016/s0377-2217(01)00044-3
- Philips’ Gloeilampenfabrieken. (2011). Elegance in electronics: Philips corporate brochure. Eindhoven, the Netherlands: Philips.
- Ramsey, J. (2001). The Marginal Efficiency of Capital, the Internal Rate of Return, and Net Present Value: An Analysis of Investment Criteria. Journal Of Political Economy, 78(5), 1017-1027. http://dx.doi.org/10.1086/25968
