Investment Plan Assignment Example | Topics and Well Written Essays - 2000 words

Investment Plan - Assignment precedent2. mode of account value of Return Accounting regularise of Return is based on accounting profit.Accounting Rate of dinero (ARR) can be defined as the percentage of Average Annual pull in of an Investment to the Average Investment.Where,Average Investment = (Initial investment + scrap set) / 2AdvantagesBy using arrive at figures, this technique relates to the return on capital employed directly.The result of this calculation is in percentage, which is easily comprehensible by most business people.DisadvantageHere also it ignores the time value of moneyIt uses the accounting profit rather than cash flows. Cash flows represent solid power over resources, whereas Accounting pelf argon subjected to the application of accounting concepts.3. Net Present Value It is a discounted cash flow method of investment appraisal. It uses the method of discounting rising cash flows to its present values. The sum of the future cash flows less the sign investment gives the Net Present value of a Project.AdvantagesIts main strength is its recognition of time value of money.As it considers cash flow for calculation, it is not affected by the accounting policy of a particular(a) company.As it takes account of the prices of raising finance, a positive NPV reflects the increase in shareholders wealth, which is supposed to be the main consideration of Project appraisal.DisadvantagesThis is a bit cumbersome process of calculating the discount number with the nature of finance available.It gives result in absolute figures, and does not allow for the size of the exteriorize.4. Internal Rate of Return Internal Rate of Return is the discount rate that gives a zero NPV....The sum of the future cash flows less the initial investment gives the Net Present value of a Project.4. Internal Rate of Return Internal Rate of Return is the discount rate that gives a zero NPV. The acceptance criteria of this method of appraisal are IRR should be gre ater than the discount rate on the presumption that a project with higher IRR than the discount rate generates higher returns.Calculation of IRR is easier as it does not require precise cost of capital discount rate. To accept a project it is enough to see that the IRR sufficiently higher than the pugnacious cost of capital.To summerize complex accounting information into relatively small no. of key indicators ratios are used. This also makes comparison easier. As we are now going to make comparison between the instruction execution of M/s Sukna and M/s Badra we should utilize the ratio analysis method. Traditionally ratios are sort out into five groups. We should look into the ratios for which data is available with us.This is known as primary ratio as it goes to the marrow squash of what most private sector firms try to achieve. This ratio gives the effectiveness of the assets financed both by shareholders and long circumstance creditors. This ratio should be as high as possi ble.Gross Profit Margin = Gross Profit / Sales X 100%. This ratio does not give a clear picture only it can give some trend.