Evaluating the Decision for the Most Suitable Project in Finance

Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Evaluating the decision relating to most suitable project ...........................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

INTRODUCTION
Finance is referred as the broader term that describes study, system of the investments,
money and the other finance related instruments. In other words, it means managing money
involving an activity such as borrowing, budgeting, saving, lending and forecasting. The present
study is based on X plc, reputed company dealing in manufacturing the parts of the vehicle in
UK and parts of Europe. Furthermore, the report highlights the computation of payback and the
net present value of the two projects. Moreover, the study presents the financial and the non-
financial factors that are to be considered while selecting the best project.
TASK
Evaluating the decision relating to most suitable project
Net present value- It is been defined as present value of all the future cash flows in
relation to a particular investment project. This capital budgeting technique helps in evaluating
an investment or the project in which firm is planning to invest it money (Roy and Hota, 2017).
Positive or greater net present value reflects that the profits is profitable, however, negative or
lower NPV depicts that the proposal will incur losses to an organization.
Payback period- It means the method that evaluates a time period within which the
company will be recovering its initial outlay cost. The investments that contains even cash flows
are calculated by dividing initial investment cost with that of annual cash flows (Chadha and
Sharma, 2019). Longer the payback period, means that the project will take longer time in
covering its initial cost while shorter payback reflects that short time period is been taken to
recover initial outlay (Maáji and Barnett, 2019).
Project A
Technological project
Year Cash inflows Discounting factor
Discounted cash
flows
1 8000 0.91 7272.73
2 10000 0.83 8264.46
3 12000 0.75 9015.78
4 15000 0.68 10245.20
5 19000 0.62 11797.51
Sum of discounted 46595.67