Investment appraisal method
Table of Contents
Section Pg
Contents 1
Introduction 2
Background 3
Methods 4
Comparison and modification 7
Conclusion 9
References 10
Introduction
With the development of business, more and more techniques have been widely used into companies to maximize the wealth. Capital investment appraisal is the budgeting of major capital and investment to company expenditure which facilitates the determination of the concerned firm 's investments. Doubtlessly, firms will benefit from modern financial technology. The most common ways of investment appraisal are payback, IRR and NPV methods; each of them has its own strengths and weaknesses from a perspective of decision making. In this essay, the background and methods of capital investment appraisal will be discussed, and then will argue the comparison of different methods.
Background
Capital appraisal is significant in capital budgeting process of company. The process involves decision making on the limited sources and selection of superior projects which provide the board of directors and the managers with the probably result on the final decision. (Pike and Neale, 2006)
The backgrounds should be considered by investors and managers before investment are as follows.
Firstly, the size of a project can be measured by the original funds. Many factors should be considered by directors if the proposal is large enough to change corporate strategy. (Lumby and Jones, 2003)
Next, at the end of investment, companies should estimate their cash flows at an appropriate rate or return period of projects which include sales, cost and depreciation charges. After this process, proposals need to be analyzed and evaluated by decision makers to determine which projects is
Section Pg
Contents 1
Introduction 2
Background 3
Methods 4
Comparison and modification 7
Conclusion 9
References 10
Introduction
With the development of business, more and more techniques have been widely used into companies to maximize the wealth. Capital investment appraisal is the budgeting of major capital and investment to company expenditure which facilitates the determination of the concerned firm 's investments. Doubtlessly, firms will benefit from modern financial technology. The most common ways of investment appraisal are payback, IRR and NPV methods; each of them has its own strengths and weaknesses from a perspective of decision making. In this essay, the background and methods of capital investment appraisal will be discussed, and then will argue the comparison of different methods.
Background
Capital appraisal is significant in capital budgeting process of company. The process involves decision making on the limited sources and selection of superior projects which provide the board of directors and the managers with the probably result on the final decision. (Pike and Neale, 2006)
The backgrounds should be considered by investors and managers before investment are as follows.
Firstly, the size of a project can be measured by the original funds. Many factors should be considered by directors if the proposal is large enough to change corporate strategy. (Lumby and Jones, 2003)
Next, at the end of investment, companies should estimate their cash flows at an appropriate rate or return period of projects which include sales, cost and depreciation charges. After this process, proposals need to be analyzed and evaluated by decision makers to determine which projects is
References: Davies, T. and Boczko, T. 2005. Business accounting and finance. 2nd edn. Maidenhead: McGraw-Hill. Emery, D. and Finnerty, J. 2005. Corporate financial management. 2th edn. New Jersey: Pearson Education. Lumby, S. and Jones, C. 1999. Investment appraisal and financial decisions. 6th edn. United Kingdom: International Thomson Business. Lumby, S. and Jones, C. 2003. Corporate finance : theory and practice. 7th edn. London: Thomson Learning. Pike, R