Prepare a 2000 word report to the board of directors at SNCF Railways which critically evaluates the reasons why the NPV method of investment appraisal is regarded as superior to other methods such as ARR, IRR, and Payback Period.

A report to the board of directors at SNCF Railways showing why the NPV method of investment analysis is superior to other methods such as ARR IRR , and Payback Period

Introduction

Project investment selection implies various choices between new investment and replacement investment or between make or buy or between buy or lease of equipment or even between widening of product line or diversification and deepening of product line or extension in same product line investments (Bierman , 1993 . Such project investment selection involves analysis of the economic and financial feasibility

aspects such as the return on investment and risk involved . As was highlighted in CFO Executive Board (April , 2005 , the main reason for an analysis of the project investment proposals is to ascertain where the future profits or cash flows will be the maximum and will redeem the initial investment outlays . Then only will the wealth of the stakeholders be increased and the organizational goals met . The selection of type of investment has to be made based on certain objective criteria known as techniques of capital budgeting

Technique of Capital Budgeting 1

The Payback or Payout period is a very simple rule-of-thumb approach . As the term suggests the technique answers as to how long will it take to recover the invested capital outlay and hence is always concerned with number of years . With the advent of cash inflows from the project there will come a time when the original financial outlay will be recovered and that is the point when...