Evaluation of Investment Options using Net Present Value Tool

ACC00152 Business finance
Assignment 1: Memo to management

MEMO
To
Savanah Harley
Chief financial officer
Space Sky Flight Ltd (SSF)
Subject: Evaluation of three investment options by considering Net present value investment
appraisal tool to recommend suitable option.
Net present value
For the present analysis NPV is selected because this tool shows computation that makes
comparison of the invested amount to the present value of receipts of future cash flows from
the investment. The amount that is invested is contrasted with the amounts of future cash
after the deduction of discount by a given rate. It is an evaluation of profit computed by
deducting the present value of cash outflows inclusive of initial costs from the cash inflows
of prevents value over the time. Decision rule:
NPV must be positive and comparatively higher than available options
Decision table1
Investment option Net present value of project Option to be selected
Option A $59.89 million Option C should be selected
as it has highest NPV.Option B $72.43 million
Option C $79.7 million
Option C is also beneficial because merely patent rights are sold to other Aero Jett Ltd in
future if company believes that they can produced at lower cost and to earn higher benefits
then they can relinquish the rights.
From
Finance department
Space Sky Flight Ltd (SSF) Date 11-May-2018
1 Above described recommendations has been provided by considering supporting analysis.