Project Appraisal

1.1. Review principles of estimating project cash flows. Suggested reading: Ch. 9 “Capital Budgeting and Cash Flow Analysis” in “Contemporary Financial Management”, 11th ed. by Moyer, McGuigan, and Kretlow.

For the purpose of calculating the net present value of the project, an appropriate cost of capital has to be calculated at which free cash flows of the project should be discounted. Since the project will be solely financed by selling new shares, cost of equity will be used as the discount rate. Beta for the company can be assumed to be equal to average of the betas of the competitors of the company. This average beta value comes out to be 1.2. Risk free rate is 0.17% while risk premium has been estimated to be 6%. Thus by putting these values in CAPM formula, we can find the cost of equity for the company which is 7.39%.

The NPSA appraisal policy defines appraisal as the process of evaluating the activities of the NPSA to determine which records need to be kept to meet the NPSA’s business needs and those stakeholders and to provide accountability for the NPSA’s actions (NPSA, 2004b). The concept of the appraisal process is to

The primary purpose of the scorecard is to help measure the financial perspective of the project. This will help measure reflecting financial performance, for example number of debtors, cash flow or return on investment, Net Present Value (NPV) and Internal Rate of Return (IRR). Several different procedures are available to analyze potential business investments. First, the most important concept of evaluating these investments is the NPV. NPV of a project can be viewed as the difference between an investment 's market value and the cost of that investment. It is only a good investment if it makes money for the company, so a positive NPV will be needed. The projects can be ranked

Capital cost – The cost of capital is expected to be 8%. This is very significant. If it happens that the capital cost was to be 9%, then the net present value will end up being -$2,271,880. This will be a net present loss of more than $2 million dollars. A meagre difference in cost of capital will determine whether the project will make losses or profits.

The performance appraisal process allows the Firm to discuss your overall performance with you and to summarize the formal and informal performance discussions held throughout the review period. The performance evaluation will review your strengths and also identify ways to improve your performance.

In the given case, there are five projects including Whalen Court, Gopher Place, Stadium Remodel, Goldie’s Square and The Barn. All of these projects were under consideration for the purpose of implementation. Each of the projects has its own cost and benefits on the performance of Target Corporation. The process of choosing one of the projects which has high Net Present Value and Internal Rate of Return is very important for the company as capital investment has a significant impact on the short term and long term profitability of the company. As a result, the ultimate objective of the case is to carry out an analysis which might help in ranking the projects so that the company would come up with the decision for acceptance and rejection of the

The senior management of Company A employ you to advise them on the cost of capital the company should use to calculate net present value and decide whether or not to undertake a new investment project. You may assume that the new project is comparable to the average of the company’s existing projects in all respects.

1-a How can the CAPM be used to estimate the cost of capital for a real business investment decision?

​The concept of appraisal highlights the method of assessing the documents. The appraisal should be devoid of any sort of partiality. It should not favour any type of user. The appraisal is not supposed to be objective, not subjected to any sort of personal beliefs or opinions, nor shall it be based on any influenced notion.

There was another problem of setting up capital required by the company for starting the production.

They should consider all analytical aspects, matters, and expectations from the project. In addition to, they should comprehend the scope objectives, one-on-one phone calls, email surveys, round-table discussions, and online surveys are outstanding methods to appraise a project. The northern should know that already Martin is putting too much effort. And top of that to know about the current state of the project, ask workers and managing team and review the results with the project manager.

There are five areas in corporate appraisal. There are categorized senior management, corporate culture, corporate publics, corporate resources and review of past performance (Jain,S.C. et all, 2012). After performing the corporate appraisal, Louis discovered that the cost were excessive, lose touch with the customers, organization structure was too decentralized and bureaucratic and stayed with their old strategy for too long therefore caused IBM to be losing out in the current competitive market (Jain,S.C. et all, 2012).

This article mainly discusses the cost of capital, the required return necessary to make a capital budgeting project worthwhile. Cost of capital includes the cost of debt and the cost of equity. Theorist conclude that the cost of capital to the owners of a firm is simply the rate of interest on bonds.

Project appraisal techniques are used to evaluate possible investment opportunities and to determine which of these opportunities will generate the best return to the firm’s shareholders. Therefore, it is vital for the firm if they wish to continue receiving funds from shareholders to employ the best techniques available when analysing which investment opportunities will give the best return. There are two types of project appraisal techniques: non-discounted cash flows and discounted cash flows. The Net Present Value and internal rate of return, examples of discounted cash flows, are in use in many large corporations and regarded as more effective than the traditional techniques of payback and accounting rate of return. In this paper, I