Traditional Investment Appraisal Techniques Can Not Cope With The Fast Changing Environment

2202 Words9 Pages
School Of Accounting, Financial Services and Law
MSc in Banking and Financial Regulation
Financial Management - ACC 11105

“Traditional Investment Appraisal techniques cannot cope with the fast changing environment in manufacturing industry today”

Matriculation Number: 40170472
Academic Year: 2014 - 2015 Table of Contents
Table of Figures 2
Introduction 3
1. Definition of Investment 3
2. Traditional Investment Appraisal Techniques 4
2.1 Payback 4
2.2 Accounting Rate of Return (ARR) 4
2.3 Net Present Value (NPV) 5
2.4 Internal Rate of Return (IRR) 6
2.5 Profitability Index (PI) 6
3. Technological evolution and traditional investment appraisal methods 6
Conclusions 7
References 9

Table of Figures
Figure 1: Financial
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Furthermore, it considers the suitability of the use of traditional methods in the constantly changing technological environment. Finally, to conclude, this assignment examines different opinions from experts regarding the adaptability of the traditional investment appraisal to the fast changing requests of today’s manufacturing industry.

1. Definition of Investment

"Investment is defined as an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price" (Investopedia, 2014). The development of a company, the ability to remain competitive and finally to survive, depends on searching for ideas in order to create new products, improve existing ones or to minimize operating costs. Adler, (2000) claimed that the process of strategic investment decision involves the identification, evaluation and selection between alternative programmes, which are likely to have a significant impact on the competitive advantage of the firm. If the investment proves to be wrong, the company will have lost a big opportunity to develop or will have spent considerable
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