Tools and Techniques of Investment Valuation and Appraisal Techniques

Running head: BUSINESS FINANCE
Business Finance
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1BUSINESS FINANCE
Executive Summary:
This report is prepared to analyse various tools and techniques of investment valuation and
investment appraisal techniques. Those investment valuation tools help in making various
important investment decisions. In this report, some of such important investment valuation
techniques such as NPV, IRR, ARR, and Payback period have been illustrated with practical
examples and described briefly for better understanding of the tools and techniques. Lastly the
report concludes with some recommendation for the business organisation for use of such
investment valuation tools and techniques.

2BUSINESS FINANCE
Table of Contents
Introduction:....................................................................................................................................3
Discounted Cash Flow Method of Assets Valuation:......................................................................3
Non-discounted Payback Period:.....................................................................................................4
Accounting Rate of Return:.............................................................................................................5
Net Present Value (NPV) and Internal Rate of Return (IRR):........................................................5
Sensitivity Analysis of NPV with respect to changes in price and quantity:..................................6
Feasibility of the Investment to the company:.................................................................................7
Positive NPV and Efficient Market hypothesis:..............................................................................8
Effect of Positive NPV in the Market value of the corporation:.....................................................8
Conclusion:......................................................................................................................................9
References and bibliography:........................................................................................................10

3BUSINESS FINANCE
Introduction:
Fixed assets are the main revenue generating capital assets, which requires a huge
investment of fund and has a long useful life. Before making such investment in a fixed assets,
the investment option must be well analysed and the feasibility of such investment must be
checked. There are some discounted techniques of investment valuation such as NPV, IRR,
Discounted Payback period as well as there are some undiscounted techniques also, such as
undiscounted payback period, payback period and so on. In the following parts of this report
some of such tools and techniques have been analysed (Brooks and Mukherjee 2013).
Discounted Cash Flow Method of Assets Valuation:
Fixed assets are long term in nature, which requires some initial investment and future
investment in terms of repairs repair, maintenance and up-gradation costs. Benefits or returns
from such investment also arises throughout the life of the assts. Hence, the major part of the
investment is made at the initial stage but the revenues are generated or realised in cash
throughout the life of the assets. To make a valid comparison between the cost and benefits the
future cash flows must be converted into the present value. Cash flow method of assets valuation
is the process of comparing future cash flows arising from an asset with its initial investment. In
this method, the initial investment and future expected investments in assets are considered as
the cash out flows and future expected revenues are considered as the cash inflows. In computing
the future cash flows all the non cash transactions are excluded from the net profit. After
calculating the cash flows, it needs to be discounted by a suitable discounting rate to compute the
present value or the net present value of the cash flows to make a conscious decision on the
investment (Kaplan and Atkinson 2015).