INVESTMENT APPRAISAL (CAPITAL BUDGETING) TECHNIQUES

INVESTMENT APPRAISAL
(CAPITAL BUDGETING)
TECHNIQUES

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question: 1..................................................................................................................................3
Question 2...................................................................................................................................9
Question 3.................................................................................................................................10
Question 4.................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The project shall be highlighting two projects A and B on which various investment appraisal
techniques are apllied to find out which option to select and which one to reject.
MAIN BODY
Question: 1
PAYBACK PERIOD
PERIOD PROJECT A CUMULATIVE PROJECT B CUMULATIVE
Year 0 -5000 -5000
Year 1 700 700 500 500
Year 2 800 1500 0 500
Year 3 900 2400 3000 3500
Year 4 1000 3400 0 3500
Year 5 1100 4500 500 4000
Year 6 1200 5700 2000 6000
Year 7 1300 7000 0 6000
Year 8 1400 8400 1000 7000
Year 9 1500 9900 0 7000
Year 10 1600 11500 0 7000
Payback Period
No. of completed
years + (Required
amount /
Incremental
amount) 5.4166666667 5.5
DISCOUNTED PAYBACK PERIOD

PERIO
D PROJECT A COC @4%
DISCOUNT
ED @4%
CUMULA
TIVE
PRO
JEC
T B
COC
@4
%
DISCO
UNTED
@4%
CUM
ULA
TIVE
Year 0 -5000
-
5000
Year 1 700 0.962 673.077 673.077 500 0.962 480.769
480.7
69
Year 2 800 0.925 739.645 1412.722 0 0.925 0
480.7
69
Year 3 900 0.889 800.097 2212.819 3000 0.889
2666.98
9
3147.
758
Year 4 1000 0.855 854.804 3067.623 0 0.855 0
3147.
758
Year 5 1100 0.822 904.120 3971.743 500 0.822 410.964
3558.
722
Year 6 1200 0.790 948.377 4920.120 2000 0.790
1580.62
9
5139.
351
Year 7 1300 0.760 987.893 5908.013 0 0.760 0
5139.
351
Year 8 1400 0.731 1022.966 6930.979 1000 0.731 730.690
5870.
041
Year 9 1500 0.703 1053.880 7984.860 0 0.703 0
5870.
041
Year 10 1600 0.676 1080.903 9065.762 0 0.676 0
5870.
041
Discount
ed
Payback
Period
No. of
completed
years +
(Required
amount /
6.081 5.912