Managing Financial Principles and Techniques - Assignment

Added on - 21 Feb 2021

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Managing Financial Principlesand Techniques - 5 (InvestmentAppraisal)
Table of ContentsMAIN BODY...................................................................................................................................1A) Method of project Investment Appraisal................................................................................1B) Evaluation of different project by investment appraisal.........................................................1C) Recommendation for the selection of project.........................................................................4D) Sources of finance...................................................................................................................4E) Component of working capital...............................................................................................4REFERENCES................................................................................................................................6
MAIN BODYA) Method of project Investment AppraisalInternal rate of return :The IRR method is used for the capital budgeting to identify orestimate the profitability of the company in particular accounting period (Pozzi and et.al., 2015).It is used to calculate the expected return rate of the project or investment.Accounting rate of return :It is used to identify the risk associated with the investmentor the project and help the investor to take the decision of investment in particular project.Payback period :It refers to the time required by the company to recover the initialinvestment or amount invested in the project (Harris, 2017.). Shorter pay back period refers thatthe company financial position is good and asset make the good profit.Net present value :It refers to the difference between the present value of cash inflowand outflow in particular time period (Li and Trutnevyte, 2017). It is used to measure theprofitability of the project that weather the project is suitable for the company or not.B) Evaluation of different project by investment appraisalCalculation of net cash inflow for Project AProject AYear 1Year 2Year 3Year 4Year 5Year 6EBIT200040005000500050006400LessDepreciation216721672167216721672167EAT-16718332833283328334233AddDepreciation216721672167216721672167CashInflow (in£)200040005000500050006400Calculation of net cash inflow for Project BProject BYear 1Year 2Year 3Year 4Year 5Year 6EBIT400020002000200010001000LessDepreciation216721672167216721672167EAT1833-167-167-167-1167-1167AddDepreciation216721672167216721672167CashInflow (in4000200020002000100010001
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