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Assignment Financial Decision Making

   

Added on  2019-12-04

11 Pages2549 Words146 Views
Financial and Decision Making
Assignment Financial Decision Making_1
Table of ContentsINTRODUCTION...........................................................................................................................1Explanation and evaluation of investment appraisal techniques.................................................1Evaluation of risk management techniques in investment appraisal..........................................4CONCLUSION................................................................................................................................5REFERENCES................................................................................................................................7
Assignment Financial Decision Making_2
Index of TablesTable 1: NPV and IRR table............................................................................................................2Table 2: Payback period table..........................................................................................................4
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INTRODUCTIONFinancial decision making studies the information from balance sheets, incomestatements and cash flow statements to help in management in making plans and strategies. It ishelpful for a company in mapping out their long term ans short term objectives (Francis andet.al., 2015). The report includes evaluation of investment appraisal techniques and theirapplicability. In order to fulfil the objective of the study IKEA Company has been taken in thereport. Furthermore NPV, IRR and Payback period methods have been used for the analysing theviability of the project. IKEA is a multinational company which sells and designs furnitures,home accessories and appliances. It is the world's largest furniture manufacturing company andhas more than 12,000 products in its portfolio. Explanation and evaluation of investment appraisal techniquesInvestment appraisal techniques studies the profitability of an investment project. IKEAhas been planning for a major investment in capital equipment. Investment is a long termdecision and it requires huge funds (Graham, Harvey and Puri, 2015). It would be beneficial fora company to study the cost of investment, returns, payback period and profits from the capitalinvestment. IKEA may have to raise debt or equity to finance the project. If the project fails anddoes not generate enough profits then the company would not be able to pay dividends or interestto the the people (Götze, Northcott and Schuster, 2015). So, it is essential for IKEA tounderstand the impacts of a project on the financial capacity of the company. Some of the majorinvestment appraisal techniques are:NPV (Net present value)ApplicabilityNet present value is applicable in the analysis and calculation of business value (Sims,Powell and Vidgen, 2015). It uses the forecast of cash inflows of the projects and their presentvalue to fin out the profitability of the investment. AssumptionsIt is assumed that all the cash flows have occurred at the end of the year (Dittrich,Wreford and Moran, 2016).The cash inflows are reinvested in the business that generates income for the company.The market is assumed to be a perfect capital market. The cash flows related to the investment are treated as if there is no uncertainty. 1
Assignment Financial Decision Making_4

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