Essay on Managing Financial Principles and Techniques

2167 Words9 Pages
BTEC Level 7
Advanced Professional Diploma in Management Studies
Managing Financial Principles and Techniques

Prepared for:
McCain’s Board of Directors

By
Arslan Irshad Dar
Tooting and Broadway consults
12 June 2010

Table of Contents

Introduction....................................................................................................1
Merits of accounting rate of return..............................................................................................1.1
Demerits of accounting rate of return.........................................................................................1.2
Merits of Payback
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McCain’s investment in alternate energy and waste lagoon together will cost 150 millions with a possible cost of capital 15% per annum. So, McCain therefore need to evaluate profitability, feasibility and cost effectiveness of both project in long run.
We as financial consultants at Tooting Broadway consult presenting this formal report on the issues raised by Finance Director to the Board of Director of McCain.

Investment Appraisal
Standard techniques of quantitative investment appraisal in business today are the payback time method, the internal rate of return (IRR) and the Net Present Value (NPV), Accounting Rate of Return (ARR) rule accompanied with a sensitivity analysis and often also scenarios. The central argument is that the standard techniques fail to capture management’s flexibility to adapt and revise later decisions in response to market development. Below are the few merits and demerits of these Investment appraisal techniques.

Merits of Accounting Rate of Return (ARR)
 It is very simple to understand and use.
 Rate of return may readily be calculated with the help of accounting data.
 They system gives due weight age to the profitability of the project if based on average rate of Return. Projects having higher rate of Return will be accepted and are comparable with the returns on similar investment derived
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