Project Appraisal is Not an Exact Science. Critically Discuss Various Project Appraisal Techniques - Essay Example

klist Model 7 Multi weighted scoring Models 8 Limitation of Multi weighted scoring Models 9 Conclusion 9 References 11 Introduction Project assessment is the combination of both the project evaluation and appraisal. Project appraisal concerns itself with advance assessment to determine whether the project is worth the investment channeled to it (Siriwardena 2011, p.205). After a company has carried out cost benefit analysis of a project, then it is in a position to decide on whether the project is to be implemented or rejected.

Researchers have not yet identified the best techniques for project worth estimation. However, project appraisal techniques can help in deciding whether to accept or reject a project. The techniques can be broadly classified into three. The categories are such as, discounted, non-discounted and non-financial techniques. . Over decades, NPV criticism has been based on its failure in considering the option of the managerial team of abandoning or extending a project. Thus, the NPV technique undermines the cash flow of a project true NPV (Pinches 1994, Van horne 1995).

Through investment and financial interaction, decisions have been made by various expertises and NPV method has been adjusted. In that case, the new NPV equals to the NPV sum to equity and financial impacts present value (Myers 1974, Luehrman 1997). The major reason why net present value (NPV) and internal rate of return (IRR) provides recommendations that are conflicting is as a result of inherent reinvestment hypothesis based on NPV and IRR (Solomon 1956, Rensaw 1957). On the contrary, it is argued that, in IRR or NPV methodology, there exists no reinvestment rate implicit assumption (Dudley 1972, Biedleman 1984).

Nevertheless, the authors write that, it is significant to come up with reinvestment rate explicit assumption when choosing between two or more competing projects. In recent years, a net present value generalized formula has been developed (Beaves 1998, 2003). The new formula accounts explicitly for projects reinvestment cash flows. In addition to that, rate of return is overall considered. However, the new formula is based on the assumption that, cash flows (net) experienced after null time get financed positively by inflows of cash flows (net).

The inflow should occur subsequently to cash outflows time zero but before cash outflow next period. In summary, total initial outlay of a project largely depends on outlay net cash expected regardless the financing source. Net present value is considered more superior than internal rate of return (IRR). NPV utilizes reinvestment rate