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Investment Appraisal Techniques and Best Proposed Project for XYZ Company
Added on -2019-09-19
This assignment discusses the various techniques employed in investment appraisal and helps XYZ Company select the best proposal among five proposals. It also suggests the best-proposed project for sustainable competitive advantage and assumptions on which the decision is based.
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FOUNDATION OF FINANCEINVESTMENT APPRAISAL
1The assignment will contain the various techniques which are employed in the investment appraisal and will help the XYZ Company to select the best proposal among the given five proposals. Further, the best-proposed project will be given so that the company can use in order to attain the sustainable competitive advantage. Then the assumptions will be given further in theassignment on which the decision will be based on the selection of the proposed project for the XYZ Company. The main techniques that are employed in investment appraisal Net present valueThe net present value of an investment or the project shows the degree to which revenue or the cash inflow exceeds or equals the amount of capital investment which is needed to fund it. Further, the organizations use the net present value as a measure of comparing the profitability tomake sure that the most economic ventures are influenced. Also, the greater net present value demonstrates the investment or the project is more profitable (Horngren et al., 2013). According to the net present value, the proposal D will be more suitable and profitable for the XYZ Company because the NPV is £726,487.4 which is much higher as compared to other four proposals which have the values £150,092.2, £119,535.2, £126,759, £433,863.7 respectively. Therefore, it can be clearly understood that on the basis of the net present value, proposal D will help the XYZ Company in order to maximize the profitability and achieving the sustainable competitive advantage.
2Figure 1Payback periodThe payback period is defined as the length of the time which is needed in order to recover the cost of the investment. Further, the payback period of the provided project or investment is the significant determinant of whether to consider to project or not. Moreover, the payback periods are not considered desirable for the positions of the investments. It completely ignores the value of the money. The payback period doesn’t represent the exact image of the company when it comes to appraising the project’s cash flows (Horngren et al., 2012). According to the result of the payback period for the each proposal. It can be clearly said that the proposal A is the most suitable one for the XYZ Company as compared to the other proposals because the value of the payback period is 1.9 years. Further, the value of other proposals is 7 years, 3 years, 2 years and 3.5 years respectively. It can be clearly seen that there is no such difference between the values of proposal A and proposal D. Therefore, the company XYZ can also use the proposal D instead of proposal A.
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