Analyzing Performance Measures and Pricing Role in Business

Case study

TABLE OF CONTENT
Case study..................................................................................................................................3
TASK 1......................................................................................................................................3
Computing investment appraisal............................................................................................3
TASK 2......................................................................................................................................6
Analysing performance of business.......................................................................................6
TASK 3......................................................................................................................................8
Analysing & comparing internal and the external performance measures and pricing role
on performance of business....................................................................................................8
REFERENCES.........................................................................................................................10

Case study
TASK 1
Computing investment appraisal
Accounting rate of return: The ARR is the percentage of return expected on an
investment as compared to the initial cost of investment (Alkaraan, 2017). ARR can be
computed by dividing the average annual profit earned by the company with the initial
investment done. The major objective of ARR is to identify the expected rate of return from
each project.
Years
Cash
inflows
1 15000
2 15000
3 5000
4 5000
5 40000
sum of annual profits 80000
Years 5
Average annual profits Sum of annual profits/No. of years 16000
Initial investment 40000
Accounting rate of
return
Average annual profits/Initial
investment 40%
Interpretation- The above results depicts that the ARR accounted as 40%, which is
reflected as higher and indicates that the company would be earning better or higher rate of
return from the proposed project. This is because it has been stated that higher the ARR,
greater is the value of return that the firm would earn by making investment in the proposal
or the project.
Net Present Value: The NPV is considered as the difference between present values
of cash inflows and cash outflows over a period of time. It is mainly used to analyse the
profitability of a projected investment (Harris, 2017). It is mainly used in the process of