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Investment Appraisal Technique : PDF

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Added on  2019-12-03

Investment Appraisal Technique : PDF

   Added on 2019-12-03

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Accounting for Performanceand Control
Investment Appraisal Technique : PDF_1
Table of ContentsINTRODUCTION ..........................................................................................................................1Net present value.........................................................................................................................1CONCLUSION................................................................................................................................3REFERENCES................................................................................................................................4
Investment Appraisal Technique : PDF_2
INTRODUCTION Each and every organization undertakes accounting measures to assess the level of itsperformance and make control over the unnecessary activities or expenses (Koh and Lee, 2015).It enables organization to make appropriate financial decisions which make contribution in theachievement of organizational aims and objectives (Kaplan and Atkinson, 2015). Besides this,investment appraisal technique such as net present value method helps company in making moreprofitable decisions. It provides deeper insight to an organization about the return which they getover a predetermined time frame (Investment appraisal techniques, 2015). It enablesorganization to build and sustain competitive edge over others. This report depicts net presentvalue of investment which helps company in suitable investment decision. Scenario: Manager of an organization already made investment in 20 projects in which30% of new products fail to achieve the expected NPV. The new investment which corporationis going to make will have no such impact upon the sales. Senior management have identifiedthat previous forecast is too optimistic. Thus, in new investment senior management of thecompany considers the higher discounting rate so as to become able to achieve their desiredoutput.Net present valueIt is also termed as NPV which depicts the present value of inflow and outflow of cashover a period of time. This method of investment appraisal considers time value of moneyconcept which states that time factor closely impacts the value of cash flow (What is net presentvalue?, 2015). NPV method provides more assistance in determining that whether the investmentwill result into profit or loss (Bedford and Malmi, 2015). It enables organization to make suitabledecisions that whether investment is suitable or not for the further organizational growth anddevelopment (He, Wang and Liu, 2015). Through this, company can choose the most profitable investment which maximizes theprofit and market share of an organization (Niblock and Sloan, 2015). In order to calculate thenet present value of an investment corporation compares present value of money from its futurevalue (Oates, 2015). This method also takes into consideration the rate of inflation which alsomake impact upon the return which enterprise gets from an investment (Yu and et.al, 2015). Inaddition to this, net present value method takes into the account the discount rate which acts as a1
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