Stryker: Net Present Value and Capital Budgeting Process

Topics: Net present value, Investment, Internal rate of return Pages: 4 (1084 words) Published: February 16, 2014

1. What are the missions of CERs and the capital budgeting process at Stryker?

Mission: Standardize and formalize the capital budgeting process. The CERs and capital budgeting process were implemented so that a more formal process of requesting capital expenditure and approving them would be applied. All this was put in place to support cash flow targets and maintain Stryker’s 20% growth benchmark.

To what extent have they been shaped by elements of corporate finance theory?

They are heavily influenced by corporate finance theory
All submissions are required to show the net present value (NPV), internal rate of return (IRR) and payback period. They need to highlight the project’s anticipated outgoing cash flow and earnings effects on the company and describe specific risks that could affect the projects abitily to deliver projects economic results. Specifically for mergers the CER would include financial analyses of “Best Case” and “Worst Case” scenarios which would include income and cash flow figures.

To what extent are they shaped by Stryker’s particular industry, history, and culture?

These factors play a role in shaping the CERs and capital budgeting: Industry: With a growth in the medical industry and an aging baby boomer population Stryker would naturally see a growth. However to continue to achieve this growth a steady or increased rate they would need to establish a method (in this case CERs and capital budgeting process) to make the best financially decisions and keep the company moving on its current growth path. History: Their business history shows that in the 1970s when John Brown took over a CEO and set ambitious growth targets that were met through invention, of their corporate slogan “20% growth forever!” That trend continued over the following decades and to maintain that growth Stryker will need to continue to review and strategically plan their investments. Culture: The company was very accustomed to proposing many...
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