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Essay / Research Paper Abstract
This 16 page paper looks at the way a compnay may consider and assess a large investment. The paper considers a number of different tools, focusing on net present value (NPV) and internal rate of return (IRR) looking at how they are used along with the strengths, weaknesses and limitations of each of the tools. The bibliography cites 10 sources.
Page Count:
16 pages (~225 words per page)
File: TS14_TEassinvest.rtf
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Unformatted sample text from the term paper:
opportunity cost risks. If a company is considering an investment of ?350 million to expand capacity the firm will need to ensure that the risk is minimised and that the
potential return is maximised. This is both basic business common sense as well as a responsibility to the shareholders. To consider the way investment appraisal can take place and
why it is important the concept of opportunity cost needs to be understood. In any business there will be decision to be made regarding investments. The business will only have
a finite ability to either use capital or to raise capital for investment, this means that any investment will have an opportunity cost.
The opportunity cost is the return that is lost from projects or investments that cannot be undertaken. Some investments may take place concurrently; whereas others will be exclusive, undertaking
one will prevent others being undertaken. If this is the case the revenues or returns that are lost as a result of the investment taking place are the opportunity cost
(Nellis and Parker, 2000). To maximise the return on an investment assessing the value of an investment will help make sure the
project or investment that gives the most value is the one which is chosen, or that investments which do not give value are rejected. For example, if the investment of
10,000 there may be two choices, one investment producing a return of 1,000 and on of 750. However, there is only one 10,000 so the investor will want to choose
the best investment. The investment cost of investing in the 1,000 return is 750, but as this is lower this is acceptable.
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