Evaluation of Investment Options and Sources of Funds for AYR Co.

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Executive Summary
This report is primarily drafted to cater the need of the Board
of Directors of the AYR Co. which is in the process of
making selection between two proposed investment options
named as Project Aspire and Project Wolf .In order to serve
this purpose both of the projects have been evaluated using
the various Capital budgeting techniques .Apart from
resorting to the capital budgeting techniques, an attempt has
been made to consider other factors while making our
suggestion to choose the specific project. As the investment
in the selected project demands the fund, hence making the
appropriate selection of fund and the consequent cost of such
fund and finally the impact on the WACC (cost of capital) of
the AYR co too have been analyzed in this report.
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A Brief
Analysi
s of the
Evaluat
ion of
Investm
ent
options
Alongwi
th the
Sources
of
Funds

Table of Contents
Introduction...........................................................................................................................................4
Answer to Question No.1 [See Appendix 1]..........................................................................................5
Net Present Value..............................................................................................................................5
Internal rate of Return.......................................................................................................................5
Payback period..................................................................................................................................5
Discussion and Analysis of the investment project................................................................................7
Discussion on two factors of financing: AYR co.....................................................................................9
Conclusion...........................................................................................................................................12
Appendix -1.........................................................................................................................................12
References...........................................................................................................................................15
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Introduction
The Board of AYR Co. is considering the option for the selection of the most suitable project
by making the evaluation of these investment proposals using three widely used capital
budgeting techniques like those of net present value, payback period and internal rate of
return. It further emphasizes on the fact that not only the financial but the non-financial
factors also play the major role in making such evaluation (Belton, 2017). The two project
options are the Project Aspire and the project Wolf with their distinct characteristics for
which our report also suggests the sources of the fund to be opted for making the investment
in the selected project. While making decision on the sources of funds the major
considerations kept in mind are the cost of the capital along with its overall impact on the
WACC of the selected Company. Our report covers both the practical as well as the
theoretical conceptual analysis of the Investment evaluation criteria. Further as it is often seen
that the financial factors play major role in making such investment decision, but non-
financial factors too have their own role to play in this regard, hence the detailed discussion
on the same has been made too (Bromwich & Scapens, 2016).
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Answer to Question No.1 [See Appendix 1]
In the following section an attempt has been made to have a brief inside about the concepts of
the Net Present value, internal rate of return and the payback period. Capital budgeting are
the long term precious decisions as they demand high volume of investment. Hence if the
decision taken is wrong then t might prove to be too costly for the company in terms of its
loss of time and money both (Alexander, 2016).
Net Present Value
In this technique the all the cash inflows generated by the project during its tenure are
discounted using a suitable discounting factor and then all the cash outflows are deducted
from the inflow streams. The same rate of discount is being applied uniformly throughout the
calculation. If this difference is either positive or zero then it is recommended for the
selection of the project otherwise the project is not considered worthy enough to be
undertaken (Choy, 2018). The present value of the future cash inflows are calculated using
appropriate discounting rate. Net present value method is easy to use provided the
discounting rate is chosen appropriately. Again it depends the correct estimation of the future
cash inflows too. But such estimation is not so easy too.
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