Johnson Controls Capital Investments
Suggest a methodology to supplement the traditional methods for evaluating the capital investments of Johnson Controls in the emerging markets to reduce risk providing a rationale of how risk will be reduced. Johnson Controls, Inc. (JCI) was founded in 1885 by Warren Johnson, who was the inventor of the first electric room thermostat. This company was based out of Milwaukee, Wisconsin and is now a global leader in the building and automotive industries. It has more than 1300 locations worldwide, over 170,000 employees, and is traded on the New York Stock Exchange under the symbol JCI. The company is made up of three major sections: Building Efficiency, Automotive Experience, and Power Solution. They are innovative and committed to sustainability all while accelerating into the global market. A methodology that Johnson Controls, Inc could use to help in evaluating capital budget investments is the discounted payback method. This method could be very useful for this company especially with all its different business aspects. The discounted payback method is considered to be the “period required to recover the initial cash investment in a project to equal the discounted value of expected cash inflows” (Bhandari, 1986, p. 18). This is the approach where the present values of cash inflows are cumulated until they equal the initial investment.” (http://www.answers.com/topic/discounted-payback-period) You see the discounted payback period takes into account the time value of money and the discounting of future cash flows which is similar to NPV method before it obtains the value for the payback period. Since Johnson Controls is a growing leader in Energy Savings Performance Contracting, it would be very sensible for management to use the discounted payback period, mainly because of the projects with the “wind (turbine), photovoltaic solar, solar hot water systems, anaerobic biogas production systems, biomass-fired...
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