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Investment Appraisal Techniques and their Limitations

Added on -2019-09-18

This article discusses various investment appraisal techniques like NPV, IRR, Payback period, Accounting rate of return, discounted cash flow methods and their limitations. It highlights the challenges faced by management while estimating future cash flows, duration of cash flows, contradictory results from different techniques, and ignoring unexpected events.
| 3 pages
| 545 words

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(a)Calculation of DepreciationMachine A =1250003=41667Machine X =600005=12000Machine B =1250006=20833Calculation of Cash Inflow of Project A201620172018201920202021Net Profit600006000060000500005000040000Add: Depreciation416674166741666120001200012000Cash Inflow101667101667101666620006200052000Calculation of Cash Inflow of Project B201620172018201920202021Net Profit200003000040000700008000065000Add: Depreciation208332083320833208332083420834Cash Inflow4083350833608339083310083485834Calculation of Net Present ValueProject AYearCash FlowPVF@20%Present Value of Cash Flow-1250001 -1,25,000 20161016670.83384,689

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