|Author||Topic: Investment Appraisal Techniques|
|Briefly explain the investment appraisal techniques that could be used by an organisation, and apply the techniques to conduct an investment appraisal for the following scenario:
123 LTD is a clothing manufacturer operating in UK for more than 10 yrs, As a strategic decision to expand its operations, the company plans to set up a manufacturing unit in another country and produce designer clothing to sell in that country. Current interest rate is 10%, the options available are:
Running expenses is estimated to be ?210K per annum and
expected revenue is USD 700K per Annum
An additional approval fee of ?22K needs to be paid in advance to trade in the country annually.
Running expenses is estimated to be ?190K per annum and
expected revenue is EURO 450K per Annum an
additional approval fee of ?25K needs to be paid in advance to operate in the every yr.
In addition, a one off Royalty Fee of ?25K needs to be paid despite of the operational years.
Running expenses is estimated to be ?200K per annum and
expected revenue is Swiss Francs 3800K per Annum,
An additional License fee of ?30K needs to be paid in advance to operate in the route for a yr.
Given the controls in this country, any factory of this nature will need an inspection by the authorities every 3 yrs amounting to ?70K per inspection.
Cost of New machinery for this purpose in any country is ?450K,
Lifetime of the Machinery is 10 yrs and
at the end of 5yrs the machinery will attract,
a residual value of ?150K.
1. Explain the investment appraisal techniques that could be used by an organisation in its project appraisal decision.
? Briefly explain the investment appraisal techniques that can be used by an organisation. Examples; Net present value(NPV), Payback period(PB), Discounted payback period, Internal Rate of Return(IRR), Accounting Rate of Return(ARR).
2. Apply the techniques to conduct an investment appraisal for the given scenario.
CFA Discussion Topic: Investment Appraisal Techniques
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