Investment Appraisal Techniques and Factors Affecting Investment Decision Making

Business Decision Making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Presenting the viability of project referring investment appraisal tools & techniques................3
Defining financial and non-financial factors which aid in investment decision making............5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
In the dynamic arena, business units are making high level of efforts with the motive to
gain competitive advantage over others. Maximization of profitability and value addition in
capital is one of the main objective of firm associated with potential investment opportunity. In
this report, two investment options will be evaluated by taking into account investment appraisal
tools and techniques. Further, report also entails factors which need to be considered by AJ Plc at
the time of investment selection or decision making.
Presenting the viability of project referring investment appraisal tools & techniques
Given case scenario exhibits that AJ plc has two options for manufacturing purpose with
the initial investment of £140000 & £120000 respectively. In order to evaluate viability
investment appraisal tools have been applied in the following way:
Payback period
This method helps in assessing time period required for the recovery of original
investment (Fontes, Koppe and Albuquerque, 2020). According to the selection criteria, project
with lower payback is good for the firm as it offers opportunity to earn profit earlier.
Project A Project B
Year
Vegan
Chocolates
(cash inflow £)
Cumulative cash
inflows (in £)
Vegan Spreads
(cash inflow £) Cumulative cash
inflows (in £)
1 52,000 52,000 46,000 46,000
2 58,000 110,000 60,000 106,000
3 82,000 192,000 72,000 178,000
4 105,000 297,000 89,000 267,000
5 118,000 415,000 108,000 375,000
2 + (140000 –
110000) / 82000
2 + (120000 –
106000) / 72000