Investment Appraisal and Return on Investment

Investment
Appraisal And Return
On Investment

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Explaining various investment appraisal techniques and recommendation on project to be
selected...................................................................................................................................1
2. Describing the reasons behind the decision of the director that IRR will be more than 7%.
................................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Investment appraisal or capital budgeting is a technique which helps to take viable
decision relating to investment in long term projects. It helps to know whether the respective
project will give desired return or not (Ginesti, Caldarelli and Zampella, 2018). This report
includes the various techniques of investment appraisal such as payback period, net present
value, accounting rate of return and internal rate of return. It also includes the recommendation
of directors regarding IRR will be above the rate of 7%.
MAIN BODY
1. Explaining various investment appraisal techniques and recommendation on project to be
selected.
Investment appraisal techniques are the tool which assist in taking several decisions
relating to the project containing various discount rates. The investment appraisal techniques are
categorised into two major types: traditional methods and modern methods. Traditional methods
are the one which does not consider the time value of the money (Huang and et.al., 2020). On the
other hand, modern techniques consider time value of money. Some of the investment appraisal
techniques can be described as given below -
Investment appraisal techniques
Net present value It is useful to select the project which are mutually exclusive
because it takes cash flows to the present value.
Internal rate of return It considers discount rate where NPV is equal to zero.
Accounting rate of return It finds out profitability by using earnings of previous years
rather than cash flows.
profitability index It is helpful in finding the attractiveness of the project.
Payback period It signifies the duration or time in which cost of an investment
will be recovered.
Discounted payback period It considers time value of money by cumulating the cash inflows.
1