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Essay / Research Paper Abstract
This 18 page paper looks at a case supplied by the student where a firm has to assess two potential investments. The different methods of assessment are considered, the use of net present value and internal rate of return are then used to assess the projects using a standard discount rate and risk adjusted discount rates. The potential impact of capital rationing and the implications of different types of capital raising are also considered. The bibliography cites 10 sources.
Page Count:
18 pages (~225 words per page)
File: TS14_TEprojxy.rtf
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Unformatted sample text from the term paper:
may include the calculation of the payback period, profitability index, the net present value, and the internal rate of return. The first may be the calculation of the payback
period. This is a very simple assessment technique, the project is projected forward with 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, 2006). 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. 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. Another tool that may be used to assess the way that capital is being used and the return it is creating is that of
the profitability index. The profitability index is the present value of the cash flows divided by the investment (Elliott and Elliott, 2007). This gives a measure of the efficiency with
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