Techniques Of Investment Appraisal, prepare 2,500 words report to Managing Director outlining and justifying the steps to be taken before the project finally goes ahead, spelling out in detail exactly what techniques should be used and why these techniqu

Investing On A Digital Photographic Printer

Applying The Techniques In Investment Appraisal

Table of Contents Summary .2

TOC \o "1-3 " \h \z HYPERLINK \l "_Toc6 " What is Investment Appraisal ? PAGEREF _Toc6 \h 4

HYPERLINK \l "_Toc7 " Relevance PAGEREF _Toc7 \h 4 HYPERLINK \l "_Toc8 " Techniques PAGEREF _Toc8 \h 4 HYPERLINK \l "_Toc9 " Cash flow PAGEREF _Toc9 \h 5 HYPERLINK \l "_Toc0 " Application Of Investment Appraisal Techniques PAGEREF _Toc0 \h 5

HYPERLINK \l "_Toc1 " Payback period (PP ) PAGEREF _Toc1 \h 5

HYPERLINK \l "_Toc2 " Accounting rate of return (ARR PAGEREF _Toc2

\h 7

HYPERLINK \l "_Toc3 " Net Present Value (NPV ) PAGEREF _Toc3 \h 7

HYPERLINK \l "_Toc4 " Internal Rate of Return (IRR ) PAGEREF _Toc4 \h 9

HYPERLINK \l "_Toc5 " Comparing NPV and IRR methods PAGEREF _Toc5 \h 10

HYPERLINK \l "_Toc6 " Profitability Index (PI ) PAGEREF _Toc6 \h 11

HYPERLINK \l "_Toc7 " Considering Risks and Uncertainty PAGEREF _Toc7 \h 12

HYPERLINK \l "_Toc8 " Quantitative analysis PAGEREF _Toc8 \h 12

HYPERLINK \l "_Toc9 " Conclusion PAGEREF _Toc9 \h 13 Bibliography .14

Summary

This basically discussed various investment appraisal techniques which can help a financial manager in determining whether a certain project is worthwhile . In this case , the project evaluated is the Digital photographic printer which Digico PLC intends to pursue . Thus several techniques are used , assumed certain values , to determine whether indeed the project will maximize shareholder 's wealth

To : Managing Director

Digico PLC

From : Name

Date : 30 November 2006

Re : Investing On A Digital Photographic Printer : Applying The Techniques

In Investment Appraisal

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Gentlemen

This is in response to the management 's on-going assessment as to whether the newly developed `digital photographic printer ' should push through . Prior to the finalization of the undertaking , the undersigned believes that a proper investment appraisal should first be conducted to determine whether the development and release of the digital photographic printer to the market will be beneficial to the company

Hence the following steps are instructive

Compute for relevant cash flows

Set acceptable criterions for the various investment appraisal techniques

Compute for the investment appraisal technique values for each available project alternative

Rank the proposed projects

Choose the project that yields the highest return or those projects that can be accommodated given the limited budget

Firms , nowadays , are lucky as techniques such as investment appraisal are available to guide a firm in its investment decision-making . In determining whether the undertaking is worthwhile , basic concepts should first be examined . Henceforth , capital budgeting and its techniques will be discussed

What is Investment Appraisal

Investment appraisal , also known as capital budgeting , is defined as the process of determining whether a long-term investment is worthwhile (Investopedia 2006 . Thus , by its name , investment appraisal deals with the expansion , replacement , or renewal of long-term assets (Gitman 2006 . This process is done in view of the goal of every firm to maximize shareholder 's wealth (Brigham 1998 . This is equivalent to making sure that every investment undertaken will yield the most return .Relevance

In capital budgeting investments are evaluated only to find...