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Essay / Research Paper Abstract
This 3 page paper looks at three tools that many be used by a manager when assessing an investment, The paper look at the use of the payback period, net present value and internal rate of return. The paper explains how each tool can be used, why it is used and some of the advantages and disadvantages. The bibliography cites 4 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEcapbudg.rtf
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Unformatted sample text from the term paper:
than others. In this paper we will loo at three methods that can be utilised when making these types of decisions. The first may be the calculation of the
payback period. This is a very simple assessment technique, the project is projected forward wit the costs and the profits (or contributions) in order to assess who long it will
take for the initial investment to be recouped. The basis of the method makes the assumption that the initial investment is affordable, and that there is a desire to minimise
opportunity costs. Where funds are tied up with one project the opportunity cost is the way in which they cannot be used elsewhere, so, by taking on projects that have
short pay back periods there is the increased potential to take on more projects (Nellis and Parker, 2000). The payback period is unlikely to be used alone, if this
were the case then only very small projects with low outlays would be taken on as these could impact on the long term of the company with fewer potential long
term investments. It may also be that the larger longer term investments will have a greater profit potential. Therefore this s one tool, but unlikely to be used alone, the
company will also want to look at the potential for profit. Companies will look at the future cash flow for a project or investment, this is a basic assessment,
but the value of future cash flows is also uncertain due to inflation. The payback period is also a tool that does not allow a comparison of different types of
project in a way that suits direct comparison. The next tool is that of the net present value calculation. This is a widely used tool and results in a single
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