Assessing suitable project for investment purpose using capital budgeting tools and techniques

Business Decision Making

TABLE OF CONTENTS
Assessing suitable project for investment purpose using capital budgeting tools and techniques
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REFERENCES................................................................................................................................8

Assessing suitable project for investment purpose using capital budgeting tools and techniques
In the business organization, managers have accountability to select best investment
project that contributes in organizational success and profitability. The current report is based on
the case scenario of XYZ plc which offers hospitality services to the customers. With the motive
to attain goals company is planning to invest funds in the new business proposals. In this, report
will shed light on the manner in which investment appraisal techniques aid in decision making.
Given case scenario presents that XYZ Plc has two projects for investment purpose such
as software and launderette. Now, manager is focusing on doing assessment of these two projects
so that optimum use of finance can be facilitated. In this context, investment appraisal tools and
techniques are highly significant which helps in appraising projects effectually. Capital
budgeting tools mainly include payback period, net present value, average and internal rate of
return which assists in analyzing the viability of project in monetary terms.
Payback method entails the length of time for which company has to wait for recovering
the amount invested at initial level (Britzelmaier, Pöpplow and Andraschko, 2020). Thus, by
using this tool manager of XYZ plc can assess the time period after which firm would become
able to recover initial investment. However, this method is to be critically evaluated because it
does not provide deeper insight about the profitability associated with project.
In addition to this, net present value method exhibits project earnings associated with the
concerned proposal. This tool of investment appraisal is highly effectual as it offers solution or
framework for decision making by taking into account time value of money concept (Gaspars-
Wieloch, 2019).
Hence, by applying these tools and techniques manager of hotel chain can decide the
project which proves to be more beneficial for the firm. Referring such aspects, evaluation of
projects has been done the by the manager of XYZ Plc in the following manner:
Calculation of NPV