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Essay / Research Paper Abstract
This 8 page paper considerers the argument that all methods of appraising capital investments are unreliable due to the level of subjectivity that is present in their use. The paper looks at a range of tools, including net present value (NPV), internal rate of return (IRR), payback period and also the cot of equity. The bibliography cites 4 sources.
Page Count:
8 pages (~225 words per page)
File: TS14_TEappsub.rtf
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Unformatted sample text from the term paper:
objective result to guide a potential investor into making the right decision. However, as there are still many diverse opinions regarding investments, as illustrated by the volatility of share prices.
It would appear that the tools are not as objective as is desired, and the way that they are interpreted is subjective, and although they may give a method of
analysis they may not be reliable in terms of the results they give. Net Present Value (NPV) is one tool that has been used widely. The benefit of this tool
is that is can compare investments that are very similar, such as a different term, different investment types and different cost structures and still produce a figure that can be
compared. The way that this operates is to look at the value that the income streams will be in todays terms, It is well known that even with no
inflation a unit of currency tomorrow will be worthy less than today, if only due to the opportunity cost and the inability to use those funds to create further income.
If the student wishes to calculate the net present value of the investment this is a way of being able to company
different types of investment by using a discount factor to bring there profit or return into todays figures (Elliott et al, 1998). This is achieved by taking the present value
of the cash inflows, and the present values of the outflows with a discount rate applied to them and is based an a specific rate of return needed for
each year the investment is to be made (Elliott et al, 1998). If the result is a positive figure then the required return will be met. For example if the
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