Financial Aspects for Marketing, and tourism

UMADDF-15-2
Financial Aspects for Marketing, Events & Tourism

Investment appraisal refers to the planning procedures utilized for determining either an
company’s long term investments like new plant and machinery, plant and machinery’s
replacement, new products, and research and development of projects that are worth of cash
funding via the capital structure of company such as debt, equity, or retained
earnings(Konstantin and Konstantin, 2018). It is considered as the procedures for allocating
resources for major investment, capital, and expenditures. It is further considered as the
evaluation done for considering the profitability of investment throughout the life besides
considering its affordability and tactical fit. Through the effective investment appraisal, business
ventures can take an effective informed decisions, which allow them to consider time value of
money(B. Kostin, 2018). For analyzing the investment decision of Aspect Ltd, various
investment appraisal method will be used and they are payback period, accounting rate of return,
net present value, and internal rate of return.
Payback period (PBP)
In investment appraisal, payback period is comprehended as the time necessary to recover the
fund invested in an investment, or for reaching the break-even points. It further refers to the time
period at the end of which a machine, or other investments has generated adequate net revenue
for recovering its investment costs (A.s et al., 2018). Payback period is deemed as the simplest
technique for calculating the time required and due to its ease it does not include complexity, and
facilitates in analyzing the project reliability. Furthermore, it is appropriate for the company that
makes small investments and does not include complex calculations by considering other factors
like discount rates. Nevertheless, it also have some major weaknesses such as it does not take
time value of money, fails to demonstrate the detailed picture, and does not consider other facets
too(Hua, 2022). Similarly, payback period only consider cash inflows until the investments cash
flows are recuperated, cash flow after the payback period are not evaluated. The payback period
of Aspect’s investment are calculated below:
Calculation of PBP
Year Cash Flow (£) Cumulative cash flow (£) Remark
1 80,000 80,000
2 120,000 200,000
3 150,000 350,000
4 200,000 550,000 Min year

5 120,000 670,000 Max year
PBP = minimum years + (Remaining year NCO/following year cash flow)
= 4 + [(600,000 – 550,000) /120,000]
= 4 + (50,000/120,000)
= 4+ 0.417
= 4.417 years
The investment will be viable for the Aspects Ltd as the investment meet the criteria set by the
board of payback period of less than five years i.e. 4.417 years.
Net Present Value (NPV)
NPV refers to the difference amid the present value of cash inflows and the present value of cash
outflows over a specific time period. NPV include all the cash flows of the project and employee
the philosophy of time value of money for deciding either to investment will generate loss or
profit. In investment appraisal, it is utilized for analyzing the profitability of the projected
investment(Shou, 2022). It is considered as the best investment appraisal technique for
determining either to make investment or not. A positive NPV states that the investment will
helps to flourish the business, however negative NPV indicates that the investment is not viable.
The major strengths of NPV is it incorporate time value of money. Along with this, it is
considered as the simple technique for determining if the project deliver the value or not. NPV
includes the cost of capital of the company, and accounts to innate uncertainty of project through
heavy discount estimations. Nevertheless, it also has some weaknesses as NPV highly relies on
the input’s quality(Yan and Zhang, 2022). It is not appropriate for comparing various projects of
distinct size as the large projects generate high returns. NPV might neglect the hidden costs like
opportunity costs and corporate costs. In nature, NPV is quantitative and totally ignore
qualitative facets. In order to know the viability of investment made by Aspects Ltd, NPV has
been calculated.
Given,