Business Appraisal in Decision Making Essay Example | Topics and Well Written Essays - 3750 words

Business Appraisal in Decision Making - Essay Example This report will focus on advising NENE Limited based on the calculation results from various case scenarios to help the management will inform decision making on project choice and well as costing methods to choose. Projected cash flows represent the forecasted movement of cash within a given project. The higher the cash flow, the more preferable the project is since it lets in more cash (Kousenidis, et al., 2006). Alpha has a cash flow of 105,000 pounds while it is projected that Beta will have a cash flow of 83,000 pounds by the end of the project’s life. Alpha will make a better project for NENE than Beta if implemented. On the basis of payback period, a project that can repay its initial invested amount faster enables the owners to begin collecting profits early (Avery, et al., 2011). Such a project is usually chosen when there is one another one with a longer payback period. Alpha project will repay its initial invested amount within 2.8 years. While Beta project will repay after within 3.1 years. Alpha will repay earlier than Beta, therefore, NENE Limited should choose Alpha project. The criteria for using Accounting Rate of Return is that the higher the rate, the more efficient the project. The rate shows the rate at which the project will give back its returns (Kapler, 2000). A project that gives back its returns at a higher rate is most preferred. Alpha project has an ARR of 29.4% while Beta project has ARR of only 1.6%. It is clear that Alpha will give higher returns faster than Beta. The management should, therefore, choose Alpha project. When using the Net Present Value, it is advisable that the project with a positive NPV be accepted (Feinstein & Lander, 2002). NPV shows the forecasted present value of the project by the time of its completion (Shrieves & Wachowicz, 2001). A positive NPV, therefore, shows that the project will achieve a profit. A project with a higher NPV is more preferred since it increases the shareholders’ income. Alpha project has an ARR of 29.4% while Beta project has ARR of only 1.6%.