Satisfactory Essays
| Amstelveen Corporation |
To: Ford Allen
From: Katie
Date: [ 2/22/2012 ]
Re: Recommendation for Amstelveen Corporation’s project investment
The purpose of this memo is to explain and recommend which projects Amstelveen Corporation should invest in based on capital budgeting calculations. First, I will explain if there are any contradictory recommendations and then I will give the recommended total I suggest Amstelveen to raise. I will also give my recommendation on which project(s) the company should pursue if it remains limited to €8,000.000.
Recommendation of Inadvisable Investments
I began my process of identifying which projects would be inadvisable to pursue based on company policies by first calculation the net
…show more content…
Another project that I would not recommend is Project D. Even though this project has an acceptable net present value, accounting rate of return, and payback period the internal rate of return of 3% is not acceptable. The internal rate of return is a larger determining factor than the other figures.
Recommendation of Advisable Investments
Based on Amstelveen Corporations’ policies and capital budget figures, I recommend that the corporation to invest in Projects A, B, C, and E. Project A has a very high internal rate of return and accounting rate of return. This indicates this project will be highly profitable and a positive net present value will increase the value of the corporation. The payback period of 1.5 years also falls within the 2 year cut-off stated in the policy. Both Projects B and E have acceptable internal rate of returns and accounting rate of returns as well. This indicates profitability for the company. Since the net present value for these projects are positive, they have positive cash flows and much value in the corporation.
Project C is another project I recommend to invest in although the payback period of over the cut-off by six months. However, this project has a highly acceptable internal rate of return and accounting rate of return. The net present value is large, which would add a lot of value to the company. In my opinion, these three other factors are large enough to outweigh the payback
Get Access