Capital Investment Appraisal Essays Text

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Completing the captcha proves you are a human and gives you temporary access to the web property. If you are on a personal connection, like at home, you can run an anti virus scan on your device to make sure it is not infected with malware. If you are at an office or shared network, you can ask the network administrator to run a scan across the network looking for misconfigured or infected devices. 178.150.66.157 bull performance amp security by cloudflare when a business spends money on new non current assets it is known as capital investment or capital expenditure.

A business can spend money for maintenance, profitability, expansion or indirect purposes. One stage in the capital investment is the appraisal or evaluation of that capital investment. Assessment of the level of expected returns earned for the level of expenditure made. Simple technique which do not take the time value of money into account and the other are dcf techniques which take the time value of money into account like npv, irr etc. Later technique is better than former technique because they take the time value of money into account and evaluate the projects in today's figures. Fixed cost arises as a direct consequence of both proposals and hence is a relevant cost.

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Discounted payback period is the time a project will take to pay back the money spent on it, taking the time value of money into account. According to this evaluation method, only those projects are selected which pay back within the specified time period. If there is more than one project then that project is selected whose payback period is fastest. The discounted payback period of proposal 1 is 3 years and 10 months however that for the proposal 2 is 2 years and 10 months. On the basis of these results the proposals 2 is more preferable than the proposal 1 subject to the acceptance criteria of the company. It is useful in certain situations like rapidly changing technology and for improving the investment conditions.

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Ldquo what are the different appraisal techniques available to finance managers to make decisions relating to investment projects? discuss each of them and recommend, giving your reasons, which of them you consider as the best technique applicable to your company rdquo. As finance manager one of the important areas of decision making for the long term is must to tackle the investment the need to committed funds by buying buildings, machinery and land. Finance manager have to check of the size of the inflows and outflows of funds, for handling these types of decisions, the degree of risk and the lifespan of the investment cost of obtaining funds are despatched.

The capital budgeting cycle can be summarised in some stage which are as follows: 2. Choose the best alternatives looking at investment appraisal involves us in stage 3 and 4 of this cycle. We can classify capital expenditure projects into four broad categories: maintenance replacing old or obsolete assets for example. Even the projects that are unlikely to generate profits should be subjected to investment appraisal. So investment appraisal may help to find the cheapest way to provide a new staff restaurant, even though such a project may be unlikely to earn profits for the company. Investment appraisal also known as capital budgeting is used to assess whether capital expenditure on a particular project will be beneficial for the entity or not. These techniques can be used to evaluate projects both in the private and public sector companies.

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2: accounting rate of return arr b: discounted cash flow methods 6: modified internal rate of return mirr 7: adjusted present value apv payback and accounting rate of return arr period are non discounted methods while all other mentioned methods are discounted. By discounted it is meant that the time value of money is considered in these methods. Payback period calculates the time taken by a project to recoup the initial investment. For a finance manager, evaluating projects by this technique would prefer projects with short payback period than those with longer payback periods.it is simple to calculate and easy to understand. Ldquo payback rdquo is literally the amount of time required for the cash inflows from a capital investment project to equal the cash outflows. The usual way that firms deal with deciding between two or more competing projects is to accept the project that has the shortest payback period. Payback period initial payment / annual cash inflow so, if 12,0 is invested with the aim of earning 12, 0 per year or net cash earnings, the payback period is calculated thus: p 12,0 / 12, 0 10 years this all looks fairly easy! but what if the project has more uneven cash inflows? then we need to work out the payback period on the cumulative cash flow over the duration of the project as a whole.

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