Assess the value of formal investment appraisal techniques Introduction This essay looks at the overall topic of assessing the value of formal investment appraisal techniques. To do this effectively, three major articles have been selected by the writer. These articles or sources are going to be critiqued into detail to find out the views and conclusions of the writers on formal investment, formal investment appraisal techniques and the values of formal investment appraisal…
The central themes of all three writers under review have therefore been to look into how best practices in formal investment start up have been adhered to; particularly with the cases of acquisition of venture capital. Below, there is a detailed discussion of the three themes of the essay as presented from the perspectives of the three writers. Formal Investment Appraisal as Part of a Businesss Plan (Ashmalla et al.) Ashamalla, Orife and Abel (2008) who pointed to venture capital as a formal investment type in today’s contemporary world, they point to the designing of business plans as the most viable formal investment appraisal to use to secure venture capital and also assess the progress of the ventures that come out of the venture capital investment. Ashamalla, Orife and Abel (2008 p. 385) take the meaning of formal investment from the perspective of venture capital. The writers therefore undertake exclusive research on how business owners perceive venture capital and how they go about the subject. The writers explain that venture capital is an aspect of formal investment whereby business owners and investors seek for source of funding to start up their businesses and ventures. This is has indeed been an ongoing phenomenon in contemporary business setting for a very long time. Primarily, investors and entrepreneurs seek for capital to start up their businesses because of the belief they have always had in their abilities to make revenues, amass profits and pay off the sources of their capital. Because the search for capital to start up any venture results in an eventual amassment of wealth, Ashamalla, Orife and Abel (2008, p. 386) regard the practice as an important investment pattern in contemporary business scenarios. Generally, investments are undertaken to make profits. To this extent, the writer agrees with Ashamalla, Orife and Abel (2008) on this point that venture capital is now regarded as an important source of formal investment for business owners and investors. The writer however criticizes the situation whereby investors have to look for other form of funds to pay off their debts. This is because it is not always certain that the ventures they start will be profitable. The writers therefore collected data on how different respondents who were all business oriented personnel viewed and envisioned the use of business plan as an appraisal technique. In the larger sense, there were several respondents who agreed to the importance of business plans in helping investors secure venture capital. The reason given by such respondents has to do with the fact that business plans helps the creditors in assessing the real strategies and visions of the capital seekers. In this way, the capital seekers are put in a better position to convince creditors that they have put enough plans in place to pay off the debts should it be granted. There were respondents who also held the view that business plans are only cosmetic and that they do not actually raise the chances of capital seekers of securing capital. From the estimation of the writer, an investor who has not started a venture yet could have nothing more tangible in proofing his lot than a business plan. Business plans are there very important appraisal techniqu ...
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Nonetheless, the financial resources that are available for the projects are more likely to be limited. As a result, the management has to evaluate the project’s viability in order to determine the best project to invest in. Through the use of investment appraisal techniques, a company is able to decide the whether or not a project is viable to undertake (Needles, Powers, & Crosson, 2011).
Taking this strategic move into account, the company is conducting an investment appraisal in order to evaluate which of the two options is more financially feasible. The company’s cost of capital is 12%. It is assumed, in the absence of information provided, that this is the weighted average cost of capital (WACC) for the company which is calculated with the help of the following formula.
Real options are different from other convectional financial options such as call and put options since they are not typically traded as securities in stock futures market. Corporate decisions today can only be made when a set of alternative strategies on investments are obtained.
The growth stage is also evidenced by the existence of sufficient resources that will be enough for the organization to open up to new opportunities. Tyneside gravel organization is currently faced by three main decisions.
The company has been expanding by leaps and bounds during the past decade and its operational and financial outlook looks amazing. In August 2004, the company made its Initial Public offering (IPO) and officially got listed on the NASDAQ index. The paper presents an analysis regarding whether the shares issued were at premium or below the rightful price.
Entrepreneurship has traditionally been perceived as an isolated process whereby the individual organizes resources and uses them for developing the new venture. However, various theories have highlighted the role of knowing individuals and argue that entrepreneurship revolves around whom you know.
In other words, the system of capital budgeting is employed to evaluate expenditure decisions which involve current outlays but are likely to produce benefits over a period of time longer than one year.
But according to the authors, DCF procedures can work if the management sets realistic hurdle rates, and carefully examines its assumptions. Decision makers need to consider three critical issues: the effects of inflation, the different levels of uncertainty in
The company uses the straight-line method to depreciate assets and estimates its cost of capital at 18%. Because of capital rationing, only one project can be accepted. To calculate depreciation expense on a fixed asset with a salvage value, the depreciable value of the fixed asset is divided by the life of that asset.
The company’s cost of capital is 12%. It is assumed, in the absence of information provided, that this is the weighted average cost of capital (WACC) for the company which is calculated with the help of the following formula.
WACC is calculated by multiplying the
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