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Business Decision Making

Appraising two prospective projects using investment appraisal

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Added on  2022-11-25

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This document provides an overview of different investment appraisal techniques such as payback period, accounting rate of return, net present value, and internal rate of return. It includes calculations and analysis for each technique and concludes with a recommendation for Dolapo Plc. The document also discusses the advantages and disadvantages of each technique.

Business Decision Making

Appraising two prospective projects using investment appraisal

   Added on 2022-11-25

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Business Decision Making
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Table of Contents
TASK-1............................................................................................................................................3
Question 1(a)...............................................................................................................................3
Question 1(b)...............................................................................................................................5
Question 1(c)...............................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1
Business Decision Making_2
TASK-1
Question 1(a)
(i) Calculation of payback period:
Payback period
Cost or cash flows Dysn Texla
Investment cost
-
250000
-
400000
Cash inflow 1st year 120000 95000
Cash inflow 2nd year 90000 125000
Cash inflow 3rd year 75000 115000
Cash inflow 4th year 80000 125000
Cash inflow 5th year 10000 90000
With regard to Asset A:
The initial investment was made at 250000 and in year 1 and 2 itself gives a payback of
120000+90000=210000.This means that only 40000 need to be recover. This means that after 2
years company need to recover only 40000. And if 40000 will be divided by 75000 then it will
give 0.53. This means only approx. half month will be required to recover the cost of investment.
Thus the payback period would be around approx. 2.5 years in case of Asset A.
With regard to Asset B:
The initial investment is 400000 and in 3 years a return of 335000
(95000+125000+115000). This means that only a sum of 65000 need to be recovered. And if we
divide 65000 by 125000 the it will produce 0.52 means an approx. of half year. This means that
the payback period is 3.5 years for Asset B.
(ii) Calculation of Accounting rate of return:
ARR Method
Dysn Texla
Initial Investment =
250000
Initial Investment =
400000
Year Cash Inflows Cash Inflows
1 120000 95000
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