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Why is the financial management position becoming so important? What do financial managers do and what types of businesses employ financial managers? What are the responsibilities of and need for financial managers?

Imagine that you are the financial manager for a company in Phuket which specializes in wildlife tours. Though your company is well-known for elephant treks and guided walking tours, it has begun to lose business to other tourism companies which provide adventure-based tours using motorbikes and boats. One day, a colleague approaches you with an exciting new investment he thinks the company could make in safari trucks. He believes that the rugged terrain and breathtaking sites of the companys preserve is perfect for the big wheels and open roof of the safari truck. He hands you a brochure of the trucks and asks your opinion. You are impressed with the potential but suggest that your colleague receive approval from the president of your company before discussing the idea any further. Later that week, the president stops by your office and asks you to conduct a financial analysis of the safari truck investment. Specifically, he would like to know whether the company will likely profit from this investment, break even, or lose money. If a profit is likely, he would like for you to authorize the capital spending of this investment.

If you were the financial manager of this tourism company, would you authorize such an investment? What calculations might you use to value the potential of the safari trucks?

You explore how financial managers use capital budgeting formulas to analyze investment opportunities. You also examine how each formula, though important to the capital budgeting process, is laden with pitfalls which might lead financial managers towards the wrong investment decisions.

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