This 9 page paper examines a case study supplied by the student. The paper answers four questions. The first question carries out calculations to compare a potential investment by a fictitious company; Egham Enterprises, using the average annual rate of rerun, the payback period and the net present value, the second questions then argues which investment would be best. The third question discusses which, if any tools are the best to use for investment appraisal. The forth question considers the case for the use of qualitative investment analysis. The bibliography cites 5 sources.
Name of Research Paper File: TS14_TEegham1.rtf
Unformatted Sample Text from the Research Paper:
and their projected income creation. a. The first requirement is to calculate the average annual rate of return. There are several equations that can be used to calculate this we
will use the most straightforward that calculates the profit each year and the level of the return and then averages that over the period of the project (Chadwick, 2001).
Choice a Income deprecation Net profit Return on investments Year 1 25,000 10,000 15,000 30% Year 2 20,000 10,000 10,000 20% Year 3 15,000 10,000 5,000 10% Year 4 10,000
10,000 0 0% Residual Value 10,000 Average Annual Rate of Return 15% Choice a has the average annual return of 15% Choice a Income
deprecation Net profit Return on investments Year 1 10,000 10,000 0 0% Year 2 10,000 10,000 0 0% Year 3 14,000 10,000 4,000 8% Year 4 26,000 10,000 16,000 32%
Residual Value 10,000 Average Annual Rate of Return 10% Choice b has the average annual return of 10% b. Next we can look at the
payback period; this is the time from investment to the time the project breaks even. Choice a Year 1 Year 2 Year 3 Year 4 Outgoings 50,000 0 0
0 Income 25,000 20,000 15,000 10,000 Net profit/loss -25,000 20,000 15,000 10,000 Accumulative total -25,000 -5,000 10,000 20,000 Choice a reaches the break even point in year 3.
Choice b Year 1 Year 2 Year 3 Year 4 Outgoings 50,000 0 0 0 Income 10,000 10,000 14,000 26,000 Net profit/loss -40,000 10,000 14,000 26,000 Accumulative total -40,000
-30,000 -16,000 10,000 Choice b reaching the breakeven point in year 4. c. The next tool used is that of the net present value. The net present value takes the