Investment Appraisal Techniques and Evaluation of Financial Management

APC308 FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
QUESTION 2...................................................................................................................................3
Investment appraisal techniques.................................................................................................3
Question 3......................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial management is being defined as the strategic planning and organizing and
controlling the decision and allocation relating to the finance. This is pertaining to the fact is that
without the finance no person or company can work in effective and efficient manner. The
reason underlying this fact is that finance is the core thing which is essentially required by the
company for its optimum utilisation of the resources and managing its operations. The financial
management is crucial as this assist the management of the company to in order to properly
allocate the funds within the business activities to gain maximum output. This financial
management will also assist the companies in providing financial information to all the
shareholders of the company. The present report will outline the calculation of the investment
appraisal techniques for analysing the feasibility and viability of the project. Along with this
analysis of the company undertaking the option of the merger and takeover will be analysed. The
question also addresses different valuation methods with their merits and demerits and provide
recommendation for choosing the best valuation method.
QUESTION 2
Investment appraisal techniques
Investment appraisal techniques are the various methods relating to the viability of the
investment option (Ameliawati and Setiyani, 2018). This involves the different methods through
which the company can evaluate and analyse the viability and feasibility of the investment option
which will provide benefits to the company.
A) Calculation of investment appraisal techniques
Payback period
Computation of Payback period
Year Cash inflows Cumulative cash inflows
1 97500 97500
2 97500 195000
3 97500 292500
4 97500 390000
5 97500 487500

6 97500 585000
Initial investment 438700
Payback period 4
0.5
Payback period 4 year and half month/ 4.5 years
With the evaluation of the above calculation relating to the payback period it is clearly visible
that the payback period is 4.5 years or 4 year and 0.5 month. This simply reflects the fact that if
the company will invest in this project then they will get back there initial investment amount
will be recovered within the calculated period.
Accounting rate of return
Computation of Average rate of return
Year Cash inflows
1 97500
2 97500
3 97500
4 97500
5 97500
6 97500
Average profit or cash inflow 97500
Average initial investment 252252.5
average initial investment [(ini-
tial investment + scrap value) / 2]
ARR 39%
By the analysis of the calculation attached relating to the computation of the average rate of
return then it is clearly visible that the ARR of the present purchase of machinery is 39 %. This is
the ratio which assists the company in calculating the return which is generated from the net
income of the proposed or potential investment option (Kengatharan, 2018). In the present case
of Superior Tasty Soup (STS) the company is having the ARR of 39 % which reflects the fact
that this present option of investment will outline the return of 39 % to the company.
Net present value
Computation of NPV