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Investment Appraisal Methods: Payback Period and Net Present Value

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Added on  2022-12-09

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This report discusses the payback period and net present value methods for investment appraisal. It includes the calculation of the payback period and net present value for Project A and Project B. The analysis shows that Project B has a lower payback period and higher net present value, making it a better investment option. The report also explores the financial and non-financial factors that affect business decision-making.

Investment Appraisal Methods: Payback Period and Net Present Value

   Added on 2022-12-09

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INDIVIDUAL ESSAY
Investment Appraisal Methods: Payback Period and Net Present Value_1
Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Task..................................................................................................................................................3
Calculation of Pay Back Period of Project A and Project B........................................................3
Calculation of Net Present Value of Project A and Project B.....................................................4
Analysis of calculation/ Final Decision.......................................................................................5
Financial Factor...........................................................................................................................6
Non-financial Factor....................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1
Investment Appraisal Methods: Payback Period and Net Present Value_2
INTRODUCTION
Investment appraisal methods is a technique with the help of which the company can easily
analyse more than one proposal at a time and select one of the suitable and profitable projects for
the company. This report will discuss the payback period and net present value method along
with their calculation for making the decision regarding which project is better out of project A
and B.
MAIN BODY
Task
Calculation of Pay Back Period of Project A and Project B
Payback period is a capital budgeting technique which state that the company have to
select the project which reflect lower PB period. PB period is a period in which the company is
able to recover all its initial investment from the project (Yang, 2018).
Formula (in case of uneven cash flow) = A + B/ C
Here, A = last period no. with negative cumulative cash flow
B = Absolute value i.e., value with last negative sign
C = Total cash inflow in the next period just after period A
Project A (Belt)
Time (in years) Cash Flows (€) Cumulative Cash flows (€)
0 (170000) (170000)
1 45000 -125000
2 45000 -80000
3 35000 -45000
4 70000 25000
5 82000 107000
3 year + 45000/ 70000
3 years + .64 months = 3.7 years
Project B (trainers)
Time (in years) Cash Flows (€) Cumulative Cash flows (€)
Investment Appraisal Methods: Payback Period and Net Present Value_3

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