Wednesday, February 27, 2019
Investment Appraisal Essay Question Essay
Q3) Using decimal and qualitative information, suggest which instill Felix and Holly should invest in.In the case study we argon told that Felix and Holly be purpose it hard to decide whether to invest in a soccer indoctrinate or a netball naturalize. They jakes use many different investing funds idea techniques which are two(prenominal) qualitative and quantitative in sight to light upon which enthronement would be intimately appropriate or worthwhile. They engage to plow the level of risk involved, how fast-flyingly the investment will pullulate to net off and whether the investment will be profitable.There are three main types of quantitative investment estimation techniques that Felix and Holly could use to identify which investment is most profitable. The first investment appraisal technique is vengeance and this measures how quickly the investment can be paid back. Using the estimations that Felix and Holly father submitted, the payback close for the socc er tame is 3 years and 4 months. The payback period for the netball school is 2 years and 8 months. This path that Felix and Holly would be better off investing in the netball school as it would take a shorter period of time to cover their cost. Another investment appraisal technique that could be used is account statement charge per unit of pop off. This appraisal measures the profitability of any investment and the profit is expressed as a percentage.Look morecapital budgeting examples essayFor the soccer school the accounting count of go down is 8.8% whereas it is 17.6% for the netball school. The comparison between these two proves that the netball school would be a better investment as the percentage of accounting crop of put across is much high than that of the soccer school. In addition, another quantitative method of appraisal is net present value. Unlike payback and ARR, this investment appraisal considers the value of funds over time. It converts all monetary va lue into todays values to allow for a realistic judicial decision of the returns of the years ahead. At 8% over 5 years, both the soccer school and netball school investments have a positive value which fashion that they are both worthwhile. However the value of the netball school is 12,430 which is a part high(prenominal) than the soccer school value at 6,950. This means that the netball school would be much more profitable for Felix and Holly as the value of the money is still greater than the soccer school.Qualitative methods of investment appraisal can also be used to identify which school would be most worthwhile for Felix and Holly to invest into. Some important factors that would need to be interpreted into consideration by Felix and Holly for their business are their objectives, resources available and the economy. A qualitative method of appraisal that can be used is internal rate of return. This investment appraisal allows specific information such as the return on the investment to be calculated. When calculated for the netball school, the internal rate of return is over 20% whereas the internal rate of return for the soccer school is between 16% and 20%. This means that the netball school has a higher rate of return than the soccer school.In conclusion, after using both quantitative and qualitative methods of investment appraisal I have identify that the most worthwhile appraisal would be the netball school. My reasons for this is because it has a shorter payback period which means that it would take a much shorter period of time to pay back. In addition, the accounting rate of return of the netball school was much higher than the soccer school. Moreover, the net present value proves that the value of the money invested inside the netball school will be much higher than that invested in the soccer school over a 5 year period. Consequently, the internal rate of return shows that the rate of return on the investment of the netball school is highe r than the return on the soccer school. Overall, all the various investment appraisal techniques that have been used have their advantages and limitations.A payback appraisal is quick and easy to calculate and can be well understood hardly it does not calculate the overall profitability of the investment or consider timing of cash flows within the payback period. Whereas an accounting rate of return does take cash flows into consideration. It also focuses on the profitability of the investment and is a good source for comparisons. Its limitations are that it ignores the timing of cash flows and the value of money over time. A net present value appraisal considers both timing and size of cash flows but it is a fairly abstruse system to use. Lastly, the internal rate of return can be easily used to compare different investments but is also very colonial to understand and use. All appraisal techniques have many limitations but they are valuable methods to consider when deciding on a particular investment. In this case all four appraisal techniques have been used to close that the most appropriate investment would be to invest in the netball school.