Comprehensive Report of Goodfellow PLC

Comprehensive Report of Goodfellow PLC

TABLE OF CONTENTS
Presenting how investment appraisal techniques aid in decision making of the firm.................3
REFERENCES................................................................................................................................9

Presenting how investment appraisal techniques aid in decision making of the firm
On the basis of cited case situation, Goodfellow Plc, is planning to invest funds in the
development site with the motive to generate high margin. Hence, company is focusing on
building two types of house such as small and large. In this regard, by employing investment
appraisal tools manager of Goodfellow Plc would become able to assess the viability of proposed
project. For evaluating the viability of proposed project several tools have been applied such as
payback, net present value, average and internal rate of return.
Benefits and drawbacks of investment appraisal tools
Payback period: It implies for the length of time which firm will take for recovering its
initial outlay. This in turn helps in assessing time period after which firm will get profit margin.
Advantages
 Easily understandable and simple to calculate
 Helps in assessing risk associated with the proposal
 It gives high level of importance to liquidity aspect and helps in making decisions
pertaining to investment proposals (Payback period, 2018)
Disadvantages
 Payback method ignores time value of money concept
 It emphasizes on liquidity but ignores profitability factor
 In the case of payback period, after cash flow is not considered
Accounting rate of return (ARR): Such method refers to average rate of return which
proposed investment will offer. ARR helps in assessing returns which is expected on an
investment.
Advantages
 Such method recognizes the concepts of net earnings which in turn considered as main
factor for investment appraisal
 ARR method clearly exhibits the profitability of project (Accounting Rate of Return
(ARR) Method | Advantages | Disadvantages, 2018)