Business Report: Investment Appraisal, Long Term Finance, Suppliers, Financial Objectives

BUSINESS REPORT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
a) Utilization of the capital investment appraisal measures.........................................................1
b) Suitable alternatives for the external sources of long term finance.........................................1
c) Types of electronic hardware and software suppliers, contracting process and the legalities
for the purchases and supply........................................................................................................2
d) Most appropriate financial objective among the profit maximization, revenue maximization
and shareholder value maximization...........................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The investment appraisal techniques are applied on the various capital investment
proposals in order to evaluate the attractiveness of these alternatives. Based on the results then
the company shall be selecting the best proposal capable of maximizing the benefits that are
attained by the company in terms of profit margin, increased sales revenue, the quickest payback,
regular working capital generation, investment requirement and the feasibility of the project for
the business. The current project shall be highlighting over the two mutually exclusive
investment proposals and their suitability for the business in its application. It shall be reflecting
the most commonly used investment appraisal techniques and their usefulness for the business.
The report shall be discussing on the alternative external sources of long term finance that the
company can use in order to arrange funds for the investment. Apart from that the report shall
also be presenting on the types of the electronic hardware and software suppliers, the contracting
process and the legalities that are to be considered in the purchasing and supplying process.
Lastly it shall be analysing the most appropriate financial objective for the organization.
TASK
a) Utilization of the capital investment appraisal measures Net Present Value – The net present value is used to analyse the profitability of the
various investment proposals and based on that the proposal generating the highest net
present value which is highest returns shall be selected by the company. Payback Period – The payback period shall be utilized in assessing the time period which
is taken to receive the initial investments back by the organization (Alkaraan, 2017). The
investment option with the quickest payback period shall be applied by the company. Accounting Rate of Return – Accounting rate of return can be used to govern the
expected rate of return that a capital investment can generate. It is one of the quickest
way of identifying the profitability of a given alternative. Internal Rate of Return – The internal rate of return can be calculated to find out the
minimum rate of return that is sufficient to cover the outflows pertaining to particular
investment. It is where the net present value is zero.
Recommendation
All the investment appraisal techniques have some pros and cons and this is the reason
that it has to be analysed that which is the most appropriate among them to identify the most
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profitable options among the various profitable alternatives. There are some criticisms like the
net present value cannot be used to evaluate and compare the investment proposals that are
having distinct sizes of the initial investments that are made to acquire or install the projects.
Since in the current scenario it can be observed that the initial investments are different so this
method shall remain unsuitable.
Apart from that the internal rate of return which is otherwise a superior method cannot be
used in the case of the mutually exclusive projects. But since in the present case the company
shall be choosing one from the two mutually exclusive projects, so the internal rate of return
method cannot be opted for the appraisal process. Another method is the accounting rate of
return which accounts for the profit rather than the cash-flows that are generated by the company
which is that the depreciation which is a non-cash expense shall also be counted. So this is also
rejected as the single choice for the capital budgeting. Lastly the payback period method which
also has certain disadvantages like it does not consider the time value of money but can be
comparatively used for the evaluation process.
Reason for the difference in the results of NPV and Payback
While comparing the both projects it can be assessed that the results pertaining to the two
techniques used which are Net Present Value and Payback are different for both the investments.
As per the investment appraisal technique of NPV it can be evaluated that the proposal B15 shall
be selected as it is offering the higher NPV or the profitability to the business (Baum, Crosby and
Devaney, 2021). But in accordance with the payback period technique it can be assessed that
A10 must be selected as the initial investments of the company are returned early in this project
which is in 2 years and 10 months.
The difference pertaining to the both calculations are arising due to the fact that the
payback period shall not be considering the time value of money, inflation risk or the various
financing alternatives and the cost pertaining to it. Also, it does consider the time period which is
there post the payback period is attained.
Why IRR shall be in excess to cost of capital
The finance director of T Ltd was very confident while quoting that the internal rate of
return of both the projects shall be well in excess of 15% that is the estimated cost of capital for
the company. The major reason behind this is that the internal rate of return for the company
shall be established at the point where the net present value for the investment is zero. The
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