RT plc: Investment Appraisal and Return on Investment Analysis

This report provides a comprehensive analysis of investment appraisal methods, focusing on their usefulness in evaluating capital investment options. It critically discusses measures such as Accounting Rate of Return, Payback Period, Net Present Value (NPV), and Internal Rate of Return (IRR) in the context of RT plc. The analysis recommends the selection of venture A20 based on its superior financial viability across multiple metrics. The report also explains the finance director's confidence in the IRR exceeding 7% for both options, attributing it to the NPV's favorable comparison against the initial investment. Ultimately, the report concludes that understanding and applying these strategic asset assessment methodologies are crucial for making informed investment decisions. Desklib offers a platform where students can find similar solved assignments and study resources to enhance their understanding of financial concepts.

Investment appraisal
and return on
investment

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Critically discuss the usefulness of the respective capital investment appraisal measures in the
table above and make a recommendation as to which option should be chosen.........................1
Explain why the finance director was so confident that IRR would be well in excess of 7 % for
both options.................................................................................................................................2
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUCTION
Accountancy is among the most important components of any business because it aids in the
analysis, evaluation, and summarization of all of the vital variables for a business, allowing it to
gain an advantage in the industry by making suitable choices that will improve it in the
foreseeable future (Abbasi, Ali and Bibi, 2018). The study contains an assessment of several
asset appraisal procedures with regard to RT plc, as well as a comparative of numerous
approaches such that the best option may be picked.
MAIN BODY
Critically discuss the usefulness of the respective capital investment appraisal measures in the
table above and make a recommendation as to which option should be chosen
There seem to be a variety of advantages to asset evaluation methodologies, including the
ability to evaluate a company's current overall effectiveness such that required actions could be
done to assist it maintain and thrive in a fiercely competing and changing industry. Capital asset
evaluation methodologies aide in predicting the facets of the coming decades which might be
produced on the basis of the current valuation, upfront outlay, dividend yield, and so forth, and
therefore it might indeed look very important and also indispensable for a business to always try
those same variables in order to facilitate the corresponding corporation in being financially
beneficial and remunerative in the segment wherein it is functional, regardless of the market
wherein it is operating. There are indeed a number of many other benefits as well that are
detailed below:
 Accountancy rates of return- This is indeed a rate that aids in evaluating financial
success in units of proportion such that important choices are being made about it to
contribute positively (Arnold, Kiel and Voigt, 2016). As it could be observed, initiative
A20 has a rate of 13%, while plan B25 has a rate of 15%, hence it could be concluded
that within this circumstance, it is far more advantageous for RT plc to choose B25.
 Payback period- It is defined as the time it takes for a venture to recoup its original
expenditure, and it should be kept as brief as possible. Because A20 has an expected
return of 3.67 years and B25 has an expected return of 4.17 years, it could be observed
that the initiative A20 is considerably more lucrative for RT plc and hence the company

must pursue it because it pays back the money spent in a far more shorter duration than
the second.
 NPV- It represents the entire revenue input and expenditure that perhaps the venture has
generated throughout ordinary operating condition. Because both A20 and B25 have a
favourable NPV of £105,700 and £112,400, correspondingly, it may be claimed that both
initiatives could be approved; however, because B25 has a greater NPV, it should be
granted preference.
 IRR- It is a financial assessment which aids in determining the total revenue produced;
hence it is desirable to be on the greater end. As it might be observed, the IRR for A20 is
10.9 percent, whereas the IRR for B25 is 9.5 percent, and as previously mentioned, the
first is more lucrative than the second. Therefore, the first, A20, is more valuable than the
later, B25, which is less financially viable (Duan, Cao and Edwards, 2020).
As a result of the aforementioned research results, this might be deduced that the venture
A20 of RT plc is far more financially viable and then also extremely remunerative in many of the
components, whereas the other venture, B25, is not as advantageous to the company as the
previous as it remains good just in one facet however it is not as decent in those other
methodologies, and therefore it might indeed be deduced that A20 must be selected over B25.
Explain why the finance director was so confident that IRR would be well in excess of 7 % for
both options
It could indeed be noticed that the monetary supervisor is really very convinced that perhaps
the IRR would therefore be well more than 7%, as the NPV while contrasted to the preliminary
funding is quite well more than 7%, as it is £105,700 for venture A20 with regard to the original
financing of £1,000,000, which is well over the threshold at 10.57 percent (Mejri, MacVaugh
and Tsagdis, 2018). Whereas the IRR for initiative B25 is £112,400, when contrasted to the
original outlay of £1,300,000, it is roughly 8.65%, which is also well above target, and thus the
financial director is extremely optimistic that the IRR will be above 7%.
CONCLUSION
As it could be seen from aforementioned, there seem to be various approaches for evaluating
strategic asset assessment methodologies, each with its own set of advantages. Besides that, it
could be stated that RT plc's initiative A20 is significantly higher beneficial to the business than
another, B25.

REFERENCES
Books and journals
Abbasi, F.K., Ali, A. and Bibi, N., 2018. Analysis of skill gap for business graduates: managerial
perspective from banking industry. Education+ Training.
Arnold, C., Kiel, D. and Voigt, K.I., 2016. How the industrial internet of things changes business
models in different manufacturing industries. International Journal of Innovation
Management, 20(08), p.1640015.
Duan, Y., Cao, G. and Edwards, J.S., 2020. Understanding the impact of business analytics on
innovation. European Journal of Operational Research, 281(3), pp.673-686.
Mejri, K., MacVaugh, J.A. and Tsagdis, D., 2018. Knowledge configurations of small and
medium-sized knowledge-intensive firms in a developing economy: A knowledge-based
view of business-to-business internationalization. Industrial marketing management, 71,
pp.160-170.