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Essay / Research Paper Abstract
This 11 page paper answers a series of questions set by the student used to assess two different investment projects. Each of the questions such a different method of investment appraisal including payback period, accounting rate of return, net present value (MPV), internal rate of return (IRR) break even analysis and consideration of how a different approach to creating projections will impact on the assessment of a projects’ viability. The bibliography cites 5 sources.
Page Count:
11 pages (~225 words per page)
File: TS14_TEinvestq1.rtf
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Unformatted sample text from the term paper:
payback period. The payback period is captivated by taking the net revenues that the project will create (before depreciation) and calculating the length of time it will take for the
initial investment be recuperated (Elliott and Elliott, 2005). The payback period calculation is shown in tables 1 and 2. Table 1 Payback period calculations for the synthetic resin project Synthetic
Resin Year 0 Year 1 Year 2 Year 3 Net Income ?150,000 ?200,000 ?300,000 Depreciation ?200,000 ?200,000 ?200,000 Net Cash Flow -?1,000,000 ?350,000 ?400,000 ?500,000 Accumulative cash flow
-?1,000,000 -?650,000 -?250,000 ?250,000 The payback period here is 2.5 years. By the end of year 3 the initial investment has been recouped. If we assumed that they net
cash flow is equally spread throughout the year the payback period will occur six months into the year. Table 2 Payback period calculation for the epoxy resin project Epoxy
Resin Year 0 Year 1 Year 2 Net Income ?440,000 ?240,000 Depreciation ?160,000 ?160,000 Net Cash Flow -?800,000 ?600,000 ?400,000 Accumulative cash flow -?800,000 -?200,000 ?200,000
The payback period here is 1.5 years, as it is during year 2 that the company has recouped the initial investment. If the revenues and an equally throughout the year
then the payback period here is 1 year 6 months. The problem with using the payback period is that it can distort the overall profitability of the project as the
two projects being compared not on a like-for-like basis, they have different investment amounts and different patterns of revenue. The payback period favours projects where there is another investment and
a higher early return. A long-term profit may be better for the company than a short term profit, the real value of the payback period calculation is to help assess
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