Investment Appraisal Techniques Risk and the CAPM

Retake Investment
Appraisal Techniques
Risk and the CAPM

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Explain risk and issues related to real investment project. Calculate Net present value and
evaluate the projects....................................................................................................................3
2. Calculate Internal rate of return of the three project and recommend the best project among
the three projects. Also state the merits and demerits of IRR.....................................................4
3. Calculate Systematic risk, non- systematic risk and total risk of the mentioned companies.. 8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Net present value is the value of future inflows in terms of present value which is calculated by
multiplying it with the discounting factor (Balasubramaniam and Easwaran, 2019). This report
includes calculations of Net present value of the project in terms of present value. In the second
section, IRR of three projects is calculated which determine the returns earned company during
the life cycle of the project. In the third section, systemic, non- systematic and total risk is
calculated which is determined to know the beta and return derived from the share price of the
companies and market return.
MAIN BODY
1. Explain risk and issues related to real investment project. Calculate Net present value and
evaluate the projects.
Year 1
Sales
(units) Probability
Expected
sales
450000 0.2 90000
35000 0.3 10500
200000 0.3 60000
90000 0.2 18000
Total
Expected
Sales 178500
Year 2
Sales
(units) Probability
350000 0.3 105000
300000 0.3 90000
100000 0.2 20000
90000 0.2 18000
Total
Expected
Sales 233000