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Accounting Tools and Measures

   

Added on  2023-03-30

6 Pages855 Words406 Views
Running head: ACCOUNTING TOOLS AND MEASURES
Accounting Tools and Measures
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1
ACCOUNTING TOOLS AND MEASURES
Contents
Part II:..............................................................................................................................................2
Part III:.............................................................................................................................................3
References:......................................................................................................................................5

2
ACCOUNTING TOOLS AND MEASURES
Part II:
Investment decisions:
Investment decisions are very crucial to an organization and its survival. The ability of an
organization to make investment in profitable investment opportunities helps an organization to
continue its business operations in the long run. Number of tools and techniques are available to
appraise investment opportunities to take correct investment decisions. These tools and
techniques are referred to as capital budgeting techniques. Such techniques include net present
value analysis (NPV), internal rate of return method (IRR), payback period method and
accounting rate of return method (ARR).
Net present value:
Using cost of capital as the rate of discount the expected cash inflows over the useful life of a
project or investment are discounted to deduct from the initial cost of investment. The resultant
difference is the NPV of the project or investment. If the present value of total cash inflows is
higher than the cost of investment then it is a desirable investment opportunity otherwise not
(Nuno Moutinho & Helena Mouta, 2018).
IRR:
Internal rate of return is calculated to determine whether it is higher than cost of capital or not. In
case IRR for a project or investment opportunity is higher than cost of capital then only
investment shall be made on such project.
Accounting rate of return:

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