Usefulness of Capital Investment Appraisal Techniques for Business Growth

Accounting for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Q1.....................................................................................................................................................3
Critical discussion of usefulness of capital investment appraisal measured and recommending
better option................................................................................................................................3
Q2.....................................................................................................................................................4
Explaining reason behind finance director being confident relating to IRR will be more than 7
%.................................................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting is very important for the business to work and analyse that whether company
is earning good amount of profit or not. For the business to run successfully it is necessary that
they expand the business so that it is growing and developing. Thus, the current report will
outline the usefulness of different capital investment appraisal techniques so that the business
can grow effectively. Along with this the report will outline the reason behind confidence of
finance director that the IRR will be more than 7 %.
Q1
Critical discussion of usefulness of capital investment appraisal measured and recommending
better option
Options Initial
investment
Accounting
rate of return
Payback
period
Net present
value
Internal rate
of return
A20 £1000000 13% 3.67 years £105700 10.9%
B25 £1300000 15% 4.17 years £112400 9.5%
The above data provides the information of both the option and result of different capital
investment options being applied. All the investment appraisal methods are important for
analysis of various options in which RT plc can invest for the growth of the company. With
respect to the accounting rate of return the project B25 is more beneficial because when the ARR
will be higher than the project will be more attractive (Siziba and Hall, 2021). Moreover, with
the help of the payback period it is clear that A20 project is much better. The reason behind this
fact is that when the payback is less than this outline the fact that company will get its invested
amount within the time frame of 3.67 years. Whereas in case of B25 the payback period of 4.17
years which is more than other project. Furthermore, with help of the net present value it is clear
that the project B25 is better. This is because of the reason that the net present value outlines the
fact that what is the present value of the future return. Along with this the internal rate of return
is better for the project A20 that is 10.9 % and it is low for B25 that is 9.5%.
Thus, with the overall analysis of all the capital investment option it is clear that the
project A20 is worth investment. The reason behind this fact is that the payback period and the
internal rate of return is more as compared to the other project. On the other hand, the other