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Investment Appraisal Techniques - Essay Example
Finance & Accounting
Pages 5 (1255 words)
Investment Appraisal Techniques Name Here Name of Institution City, State Date Investment Appraisal Techniques In most instances, businesses are faced with a wide range of investment projects to invest in, as a way of generating income. More so, companies invest in projects to expand its business base by increasing its competition edge, production and reduce the cost it incurs (Shim & Siegel, 2001)…
Some of the investment appraisal techniques used range from Net Present Value (NPV), Accounting Rate of Return (ARR), Internal Rate of Return (ARR) and Payback Period. Net Present Value (NPV) As one of the investment appraisal techniques, net present value (NPV) method ensures that the value of all the expected future cash flows is calculated into the present values (Droms, & Wright, 2010). More significantly, the net present value (NPV) method takes into consideration the difference that arises between the present value of the expected cash inflows of a project and the present value of the expected cash outflows that the project will yield in the future (Crosson & Needles, 2011). This is essential in the determination of whether or not the project is viable in the present condition if the projected will yield the projected cash flow in the future (Moyer, McGuigan & Kretlow, 2008). Calculations are done using the discount rate of the cost of capital that is determined depending on considerations of the future projected risk of the project (Hastings, 2009). ...
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