Investment Appraisal and Return on Investment

Investment Appraisal
and Return on
Investment

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
Describe the usefulness of capital investment appraisal measures with strength and
weaknesses.............................................................................................................................3
Recommendations for the project:..........................................................................................4
Define reasons why finance director was so sure that IRR would be more than 7% for both
options....................................................................................................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The report prepared explains capital budgeting which helps a business to understand
which project plan or investment plan it must choose. It involves various appraisal techniques
available in the market and choose among them which would fit the requirements in best
possible manner. It helps to find which project will generate more revenues and will recover its
initial investment better than others. It guides managers to understand the cash inflow and
outflow taking place in a company during the year and how risks can be controlled in due time
(Bianchi, Rossini and Iacopini, 2020).
TASK
Describe the usefulness of capital investment appraisal measures with strength and weaknesses.
Capital budgeting/ investment appraisal focuses on taking decisions as which project
must be given preference and should be chosen. It also prioritizes on achieving goals, objectives
set by the organisation. It is important for the business because it manages accountability and
measurability which helps to measure risks prevailing with the project plans and which accounts
are accountable for which expenses/ incomes. Investment appraisal is the analysis which is
helpful in calculation of profit margin and also testing affordability of project. Net present value
helps to evaluate the difference between revenue generated and expenses incurred over a period
of time in firm (Ahmad and et.al., 2021).
Investment appraisal techniques explained below:
Net present value: It can be explained as a method which is useful to find out whether initial
investment made by business and present value earned is covering all expenses or not. It is useful
in conditions where cash flow activity is recorded at different time intervals.
Strength: It is the simplest way to find out whether a project plan will deliver value or not.
Weakness: It is not helpful when one has to compare projects of various sizes because the
largest projects reflect higher returns.
Accounting rate of return: It is a technique which is helpful in finding urge to earn profit on
investment made for a period of time. It is important as it guides investors to examine the risk
involved in investment and make a decision whether the investment made is worth the risk.
Strength: It serves as a scale for measuring present performance of a project and what could be
the profit margin of particular investment made.