Accounting and Decision Making Techniques
Accounting and Decision Making Techniques
Assignment MFP/MBA November 2012 –March 2013 Course Lecturer: S.A. Palan
ONUR CAN ASLAN B0316KGKG1112
2013
Table of Content ABSTRACT 3 INTRODUCTION 4 Importance of Investment Appraisal for Business Entities 5 Calculations of NPV, IRR and Payback Period 5 Selection of Projects 8 Changes in the NPV with cost of capital 8 Changes in the IRR with cost of capital 9 Difference of sensitivity between Long-term and Short term NPV 9 NPV versus IRR 9 Conclusion 10 References 11
ABSTRACT
This paper covers the implementation of three investment appraisal methods. Initially, importance of investment appraisal has been analyzed. Secondly, calculations have been done for Net present value, Payback period, Internal Rate of Return for two projects. Subsequently, selection of project has been done with assistance of results from calculations. After that, it has been discussed that how does change in cost of capital affect NPV and IRR. In addition to above, sensitivity of NPV in long run and short run has been analyzed. Finally, difference among NPV and IRR methods and their effectiveness have been discussed
INTRODUCTION
Capital budgeting is also one of the names that given to investment appraisal .To plan businesses future and making strategic decisions capital budgeting has important role. In this study, in the light of given questions calculating payback period, net present value and internal rate of return it has been intended to improve understanding of investment appraisal methods. Given questions have been answered under the separate headings.
Importance of Investment Appraisal for Business Entities
Growing or enhancing existing assets are desire for every business. This growth or extension of new product line is possible with investments. However, it needs to be known that capital we will invest bring profit or not. At this point, appraisal of investment becomes an important issue.
Assignment MFP/MBA November 2012 –March 2013 Course Lecturer: S.A. Palan
ONUR CAN ASLAN B0316KGKG1112
2013
Table of Content ABSTRACT 3 INTRODUCTION 4 Importance of Investment Appraisal for Business Entities 5 Calculations of NPV, IRR and Payback Period 5 Selection of Projects 8 Changes in the NPV with cost of capital 8 Changes in the IRR with cost of capital 9 Difference of sensitivity between Long-term and Short term NPV 9 NPV versus IRR 9 Conclusion 10 References 11
ABSTRACT
This paper covers the implementation of three investment appraisal methods. Initially, importance of investment appraisal has been analyzed. Secondly, calculations have been done for Net present value, Payback period, Internal Rate of Return for two projects. Subsequently, selection of project has been done with assistance of results from calculations. After that, it has been discussed that how does change in cost of capital affect NPV and IRR. In addition to above, sensitivity of NPV in long run and short run has been analyzed. Finally, difference among NPV and IRR methods and their effectiveness have been discussed
INTRODUCTION
Capital budgeting is also one of the names that given to investment appraisal .To plan businesses future and making strategic decisions capital budgeting has important role. In this study, in the light of given questions calculating payback period, net present value and internal rate of return it has been intended to improve understanding of investment appraisal methods. Given questions have been answered under the separate headings.
Importance of Investment Appraisal for Business Entities
Growing or enhancing existing assets are desire for every business. This growth or extension of new product line is possible with investments. However, it needs to be known that capital we will invest bring profit or not. At this point, appraisal of investment becomes an important issue.
References: Biz/ed. (2007). Investment Appraisal. Available: http://www.bized.co.uk/sites/bized/files/docs/investment1.ppt. Last accessed February 2013. | Ginny Edwards. (11/29/2010). Comparing NPV & IRR. Available: http://www.brighthubpm.com/project-planning/95800-comparing-npv-and-irr/. Last accessed February 2013. | Julita. (December 9, 2009). Difference Between NPV and IRR. Available: http://www.differencebetween.net/business/difference-between-npv-and-irr/. Last accessed February 2013 | Ralf Spann. (2008-09-30). Making Investment Decisions with the Net Present Value Rule. Available: http://university.akelius.de/library/pdf/making_investme_ralf_spann.pdf. Last accessed February 2013. | tutor2u. (2012). Discounting Methods. Available: http://www.tutor2u.net/business/presentations/accounts/investappraisaldiscounting/default.html. Last accessed February 2013. | Wales business studies (2 Sept. 2008 ). Investment Appraisal. Available: http://www.ngfl-cymru.org.uk/investment_appraisal.pdf. Last accessed February 2013. |