average rate of return method, cash payback method, netpresentvalue method, and internalrate of return method. |
| | Explain the advantages and disadvantages of various methods of evaluating capital investment proposals. |
| | Explain the concept of the time value of money (presentvalue and...
Different appraisal techniques let you assess the effects an investment will have on your cash flow. You can compare the expected return to the cost of funding and to the returns offered by other potential investments. Your assessment should consider all the financial consequences of an investment. For example...
capital budgeting is the firms decisions o invest its current funds most efficiently in the long term assets.
In anticipation of an expected flow of benefits over a series of years. Examples of capital budgeting decisions are:-
-Expansion of existing business.
-Acquisition of another firm.
2. If the netpresentvalue of an investment proposal is positive, the required rate of return is greater than the return that will be generated by the investment.
False. A positive netpresentvalue indicates that the investment is earning more than the minimum required rate of return.
NetPresentValue (NPV): the presentvalue of the future after-tax cash flow minus the investment outlay made initially. The decision rule for the NPV as follows: invest if NPV> 0, do not invest if NPV< 0
InternalRate of Return (IRR): calculates the interest rate that equates the present value...
profitability, value and viability.
In principle, a firm’s decision to invest in a new project should be made according to whether the project increases the wealth of the firm’s shareholders. For example, the NetPresentValue (NPV) rule specifies an objective process by which firms can assess the value that...
Project finance entails significant countervailing benefits to offset the incremental transaction cost and time. Yet, the academic practitioner fails to understand and accurately depict these benefits. As it is true that leverage raises expected equity returns, the motivation for using project finance fails...
purchase of fixed assets such as new equipment, software systems, buildings, etc. Capital projects are usually evaluated using both quantitative and qualitative analysis. In broad terms, quantitative analysis is simply a way of measuring things. Examples of quantitative analysis include everything from simple...
provide them special services, one of which is the cold-drawn steel. However, certain equipments are necessary to be able to produce such a product. At present, we have in our hands a 57-year old draw bench which has a bad reputation of consuming too much energy, of producing a lot of rejects and of needing...
automobile assembly plant, the direct materials are the cars' component parts).
DenimWorks purchases its denim from a local supplier with terms of net 30 days, FOB destination. This means that title to the denim passes from the supplier to DenimWorks when DenimWorks receives the material. When the denim...
the best interest of Glaxo Italia in terms of netpresentvalue, rather than the IRR or paybackperiod used previously. We have decided that co-marketing with another company would be the best option for Glaxo Italia as it has the higher netpresentvalue.
Forecasting and Analysis
We have decided...
open and manage your own nightclub, Beach Karaoke Pub. Using the predominant valuation methods, we have analyzed the relevant quantitative and qualitative data over their useful lives. In our assessment, we discuss the strengths and weaknesses of each approach as well as their relative weights in determining...
investment decisions are those decisions that involve current outlays in return for a stream of benefits in future years. It is true to say that all of the firm’s expenditures are made in expectation of realizing future benefits. The distinguishing feature between short-term decisions and capital investment...
NetPresentValue and Other Investment Criteria
List the methods that a firm can use to evaluate a potential investment.
1) Accounting rate of return: ARR is a non-discounted cash flow method in which accounting information are used.
2) PaybackPeriod: Payback...
TUTOR: S PALAN
NAME: MD.NURUL ISLAM AZAD
Table of Contents
Requirement: 1 3
Calculate the Payback: Proposal: One to Five 3
Calculation of payback-proposal 1 3
Proposal -2 4
Proposal -3 4
Proposal -4 5
Proposal -5 5
Calculate the IRR of proposal one to five: 7
public sector investment projects. There are different types of investment appraisal techniques among them some are described below
“PBP is the period of time required for the cumulative expected cash flows
from an investment project to equal the initial cash outflow”
methods are used in capital budgeting, including the techniques such as
* Accounting rate of return
* Profitability index
* Internalrate of return
* Modified internalrate of return
* Equivalent annuity
These methods use the incremental cash flows from each potential...