Critical Evaluation of Investment Appraisal Methods in Business Finance

Business finance

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
The Role of Finance in Modern World........................................................................................3
Conceptual Framework of Finance..............................................................................................3
Techniques used for Capital Investment Appraisal.....................................................................4
Key Stakeholders.........................................................................................................................5
Impacts on investment appraisal..................................................................................................6
Investment appraisal and concept of value-based management..................................................7
Portfolio Theory and Capital Asset Pricing Model.....................................................................7
Reflection report..........................................................................................................................7
Conclusion.......................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In this study critical evaluation of the different methods of investment appraisal is made.
Also the role of finance in modern world with conceptual framework of finance is highlighted.
To understand the range and application used for capital investment appraisal following factors
i.e. taxation, inflation and shortage of capital is discussed (Hertati and et.al, 2020). The concept
of value based management system with shareholders value analysis and economic value added
is described. Further, options in dealing with risk and uncertainty with the concept of risk
aversion and diversification along with portfolio theory and capital asset pricing model is
outlined.
MAIN BODY
The Role of Finance in Modern World
The importance of the business is to take decisions related to the choice of the investment
and raising capital. Financing business is vital to organisations and once the decisions related to
the financing are made and executed they are not easy to reverse. The practice of financing is a
practical approach and is concerned with the decision making in the real scenario. In business
financing decision making the concept of risk and return is applied. The management of the
organisations before making financial decisions evaluate the risk perceived in procurement of the
finance and the expected return generated from the risk of financing from that particular
investment (Eddie, 2017). Also, to analyse the scenario the management of the businesses rely
on the accounting information and records. The accounting records is maintain on the basis of
historical events which is used by the management to forecast and take decisions related to
financing. Financing business is connected to the shareholder’s wealth maximisation and other
stakeholder’s perceptions. Investors of the businesses are concerned about the investment
appraisal techniques and generation of future returns (Vogl, 2017). Thus, proper business
financing decisions will help to achieve business and stakeholder’s objectives.
Conceptual Framework of Finance
The framework provide a guidance in the preparation of the financial standards for the
general purpose financial reporting. The conceptual framework highlights the fundamental
concepts for the financial reporting that confirm that the standards are conceptually consistence
to provide investor, lenders and creditors’ useful financial information (Conceptual Framework