Final Coursework Example | Topics and Well Written Essays - 2500 words

Final - Coursework ExampleIn order to determine the feasibility of a determine and to allow for comparisons between those that be mutually exclusive several very useful and extremely recognised techniques are available. They include I. Net present value (NPV) II. Internal rate of return (IRR) III. account statement Rate of Return (ARR) and IV. Simple payback There are three (3) machines that the firm is considering as an investment. They are the Alumier which it currently uses Big EZ and Cial. The objective of evaluating these investments is to determine which would be more beneficial to the firm. Evaluating Capital Budgeting Tools The NPV, IRR, ARR and simple payback. The advantages and disadvantages of use these orders are noted weaknesses and the relevant calculations to aid in the decision process are noted. Net puzzle Value (NPV) The net present value takes the time value of money into account and so the specie flows are discounted over the useful life of the asset. A NP V of zero means that the cash flow from the objectify would be sufficient to repay the sign investment only but would not contribute anything extra. A NPV that is less than zero (negative) would indicate that the funds generated from the project cannot generate sufficient funds to repay the initial investment and therefore should not be undertaken. On the other hand a domineering NPV indicates that the project would be able to repay the initial investment and also allow some returns to shareholders (Brigham and Ehrhardt 2005). A positive NPV therefore means that the project under consideration is a worthwhile investment and should be undertaken. This method is very popular but has a yield of shortcomings. Titman et al (2011) indicates that in case of capital ration the NPV is not the deal method as choosing the projects with the highest profitability but not the highest NPV overall when compared to a number of smaller projects. Additionally some of the budget may be left unused. The formula for calculating the NPV is NPV = CF0 + ((CF1/(1 +