In making any significant investment decision, there are many non-financial factors that the college should take into consideration as these factors act as backbone of investment appraisal that determine the worthy of the project too, which is not just all about financial factors. Students and lecturers would be the main victims who will be affected head over heels by the decision. Students will lost their good study place and opportunity to further their studies. This caused their satisfaction level plunged as they are unhappy for the sudden cease of their course. Students are the customers of the college who are always the king. (RSS 2009) Once they are dissatisfied, it could be the time where word of mouth exerts and exercises its power. The students will transmit and spread the negative side of news about the college which eventually resulted in damaged reputation.
Besides that, the negative effect that will be resulted on the motivation of lecturer should be considered before furthering the decision of discontinuing the course. (ibid) They will lack of motivation when they really got worried over their fate as a result of the course which they are teaching was being pulled out from the college's offering programmes. If it really happens, the ongoing availability of manpower- full-time lecturers since the introduction of the course may be forced in bulk to stop teaching and thus they will lose their means of livelihood. (Chinweike 2010) This will affect other staffs' morale to be demotivated too and thus their performance level will be low which then caused to the performance of company to suffer downturn in overall context. As a result, the company has to investigate and scrutinize the factors that are non-financial but can have disastrous effects on risk, an aftermath of which the overall performance of the college include financial aspects could be discovered and observed immediately. (Reid & Smith 2008)
Indeed, they should consider the factor that could be crucial to investment appraisal which is the reputation of the college that has been build up upon the popularity of the course. Its renowned image and reputation are the accumulated positive message from customers who perceive and interpret about the college as quality education provider. Unfortunately, the decision of discontinuing the course may cause the company to damage its own reputation as it loses its public confidence on the college. The complaints from the students and lecturers have discredited its image. The ranking of the college among all other colleges will thus drop from its prominent standing which its competitors can take full advantage on it. Hence, image and reputation of Mawar College is a critical factor to be considered in decision making as it is very difficult to turn it around once it has been damaged. (ibid)
Further, the possible legal or regulatory consequences should be foresee and take into account by the college too. The students and lecturers all may turn out to protest against the act of the college which will then involve the participation of media and law-executor such as police as an effort shown to raise others' concerns and consciousness. The qualifications of the course that established in education industry could start to be called into question include the college itself. On the other hand, as it is considered as a sudden decision to discontinue the course, Mawar College most probably will be filed legal actions or lawsuits from both students and lecturers. The full-time lecturers can sue Mawar College as there are law of contracts applies to contracts between lecturers and college. A breach of lecturer contract could occur if the college has terminated the employment of a full-time lecturer with no violation of any terms of employment agreement has done by them. This is their rights to protect themselves and compensation can be claimed from the college under the contract. (enotes.com 2010) The students also can file a lawsuit against Mawar College for their breaching of contract and promise for providing them the course until they complete and graduate from it. The course discontinuation caused them study until half way and thus they can claim to recover their time and money losses. Therefore Mawar College has to consider carefully for their planned action as they would encounter the troubling of lawsuits.
Mawar College should also consider corporate social responsibility in its decision making. An established college like Mawar College may offer scholarship to students who obtain outstanding academic achievement to further their study in the college. The purpose of offering the scholarship of Mawar College is normally to promote the opportunity of compelling Corporate Social Responsibility as a contribution to the wellness of the community. This program help the youth to realize their full potential and fulfil their aspirations through the education opportunity offered in the college. However the discontinuing of the course would upset the students especially those who come from poor family as their study opportunities with scholarship offered are being repealed. The chance to get the financial aids from the college to pursue their academic dreams in higher education is so rare to them. As a result, the students will groan for their futile hope. (Malaysia-scholarship.com 2010)
In a nutshell, it is important for Mawar College to look at factors which are outside the scope of the usual financial factors in decision making process of investment proposal. (Reid & Smith 2008) Money does not mean everything. The best method is utilizing the balanced scorecard by take in the financial and non-financial factors together into considerations so that the decision made will be more precise and prudential. (Smith 2002)
Part c)
Net Present Value (NPV) method is the difference in the present value of the cash inflows and initial investment outlay. It is the most widely accepted and the most sound of all the investment appraisal methods because it is well-known as a decision-making technique for a company in undertaking any of the investment appraisals. However, Payback method and the Accounting Rate of Return method are still widely used instead of NPV method. The reasons are stated and explained below. (Hansen et al 2009)
Payback method and Accounting Rate of Return method are the most popular methods for the evaluation of small sized projects. The payback period is a convenient tool for investment appraisal which is the length of time required to recoup the initial cost of the project. (Chandra 2009) The project with minimum time in recovering the initial investment will be desirable as its payback period is shorter than the other competing projects and ranks higher in the order of preference. (Barthwal 2000) This tool is interpreted as "layman's method" of investment appraisal due to its most appealing simplicity and also allowed quick calculation and easy understanding for management, both in concept and application. (Lumby 1988)
Besides that, it helps them to save the times spending in analyzing the number of choices available and eliminating the alternatives from the merits of desirable investment appraisal. (Park 2007) Instead of only saving the times, the company can save cost too as they avoid using the sophisticated techniques that require the use of computers which may increase their spending cost. (Abeysinghe 2010)
This method also works as a risk indicator. It helps managements to choose the investment appraisal that seems less risky which reaches break even most quickly. (Lumby 1988) It is because they can recoup the money as fast as possible so that any of the risks and uncertainties, especially in a rapidly changing environment associated with the investment project can be avoided. (Barthwal 2000) When the project invested has shorter term of payback period, the investors can reuse the money in another potential investment appraisal or other profitable purposes. (Warren 2000)
Further, the company also can repay any loans promptly by utilizing payback method in considering and selecting the projects. It is because the company managed to recover the initial investment cost early. This is an important criterion as it is secured and safe way to guarantee the undertaken investment generating profits for the company and cut down the liabilities the company are having. (Barthwal 2000) Therefore the projects with the fastest payoff would be taking into account first. The liquidity can elevate the value of the company which then boosts the confidence of both shareholders and banks who funding their projects. (Warren 2000)
On the other hand, the Accounting Rate of Return (ARR) method calculates the forecast average profit per year as a percentage of the average investment. It is known as a simple and easy calculation for profitability which the figure produced is kept easy to compare with the return from alternative projects. (Armstrong 2006) It allows the company to track the profitability and cost effectiveness of the investment appraisal. This assists them to progress in a more effective planning and improve their future decisions regarding to capital expenditures. (Mysmp.com 2010) Hence the decision to accept or reject an investment proposal will be facilitated. (Ramachandra 2006)
Lastly, ARR method assists businessmen in terms of their understanding as it is calculated directly from the company's accounting information which is readily available and familiar to them. (Chandra 2009) It leads to quick analysis and decision of the company due to its preferred utility and convenience it brought. (Mysmp.com 2010) All the cash inflows during the life of the project and the benefits over the whole life of the project will be considered too. It is reliable as it considers net profit after depreciation, taxes and interest. (Ramachandra 2006)
