Capital budgeting is pivotal in making decisions on whether to invest in a market.
Furthermore, investment decisions take a lot of time to mature. More importantly, such decisions
have to be made based on the profits that the company is likely to obtain. As such, making
investment decisions based on limited information such as expected returns is not suitable for a
company unless its main objective is based on social reasons. The best investments are those
which will become profitable in long-run. Therefore, the available information does not offer
enough reasons to persuade Callaway to invest into this market. Noteworthy, the present capital
value and future investment makes part of the most important factors in investment decision
making. Typically, such decisions would include building new structures and acquiring new
Therefore, it would be best for the management of Callaway to consider using hypothesis
testing in making such decisions. Nevertheless, the formula sometimes creates certain errors
hence leading to unnecessary decisions. For instance, when using hypothesis testing in this case,
the null hypothesis is that the company will make profits only when they are able to control 20%
of the market. Therefore, the total number of Callaway’s buyers compared to the buyers in the
market would provide us with Callaway’s share of the market. As such, 140/624 when converted

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into percentage equals 22.4%. If this figure is compared to the predicted market share value, it is
higher and hence an error in making investment decision. In conclusion, the management of the
company ought to consider several other factors such as competition in the market and ease of
operation including issues like support by the government.

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