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

Investment appraisal (for example, estimating clean-up costs at the end of a project life and assessing the environmental costs of a project)

Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.

In making the investment decision, it would be imperative to form a strategic plan, therefore the financial investors, financial institutions, shareholders, and lenders would be able to visualize how the capital investment would be profitable for them as well as have a return on investment.

In this essay I would like to elaborate on the investment analysis of two companies, open a space of possibilities in discourse and practices in order to determine which of the two companies to invest in. The essay will commence with a brief overview of the two companies that are being considered. The latter part of the essay will explain and critique the financial position of the two companies and also the strategy and structure of the organization. For this purpose different financial tools will be used. The conclusion will be description and reasons for the company chosen to invest.

The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 3, July-August 2013

The historical roots on Return on Investments (ROI) have an extensive historical background which involves the Du Pont system. It is significant to illustrate the major history behind the Return on Investments (ROI) and how the Du Pont system started. The purpose of the Return on Investment (ROI) is to evaluate the efficiency of an investment or compare the efficiency of various investments. In addition to (ROI) share the common class of profitability ratios. Several examples will show how Return on Investments (ROI) and the Du Pont system has established life-long formulas to help indicate growth or decline on financial investments.

The Investment Appraisal are techniques used in an organisation’s overall strategy and decision of capital investment. In general capital investment appraisal are used for ranking projects. A firm can usually have many projects that are appraised at the same time and those techniques will compare the projects and once completed will determine the highest one and this will be implemented. The investment appraisal considered are: ARR, PAYBACK, NPV AND IRR.

INTRODUCTION ................................................................................................................................. 2 Return On Investment ................................................................................................................... 3 PART 1............................................................................................................................................... 4 Comparison among Payback, ARR and NPV.................................................................................... 4 PART

Investing plays a huge role in any country, business or individual’s life. Investing is the action or process of purchasing an asset in hope that it will generate income and ultimately appreciate within the future. They can be goods that are not used right away, but held onto and used in the future in order to create wealth, or a monetary asset that will provide income in the future and will be sold at a higher price for a profit.

Johnson Controls, Inc. is a global company that offers services and products aimed at optimizing operational efficiencies and energy of buildings, electronics, automotive batteries and interior systems for automobiles. The company’s headquarters are located in Milwaukee, Wisconsin and is listed on the New York Stock Exchange as a fortune 500 company. Johnson Controls predicts that it will be able to increase its capital expenditures investments by $1.7 billion approximately. Most of the planned capital spending by the company will go to financing margin expansion and growth opportunities. This essay highlights the importance of companies to be able to evaluate investment decisions so that current and capital expenditure on proposed projects and schemes can be done prudently to ensure the company’s success (Johnson Controls (2015).

Conclusion.This study empirically investigates the relation between WAAC and Investment decision in the firm. The research findings are presented in chapter 4 of results and discussions. This chapter focuses on the conclusion derived from those research findings. We tested how WAAC impacts the investment decision of the firm. We have used data of 10 companies of cement sector listed on KSE, covers the period of 2008-2012. In this study, both variables were being dignified by using the data from the financial statements of the cement sector, and by using the specific formulas. We usedReturn on Investmentratio to measure the investment decision in the firm and WAAC is measured by the cost of each capital component multiplied by its proportional weight and then summing. We run regression, correlation and descriptive tests to find the impact of WAAC on investment decision of the shareholders and future

Investment appraisals are an integral part of the business industry. Every sector of business and government utilizes it to some extent. Investment appraisals are defined by The Business Dictionary as “An evaluation of the attractiveness of an investment proposal, using methods such as average rate of return, internal rate of return (IRR), net present value (NPV), or payback period”. This can be used for a wide range of areas. Even where the returns are less visible such as personnel, marketing, and training. Investment appraisals are used by nearly everyone who utilizes capital. Private businesses are the most common; however it is an important tool to governments as well. There are many steps involved with Investment Appraisals because of the nature of it. One wrong investment could bankrupt a company or government. One such government that used Investment Appraisals and grew as a result is Suwanee, Georgia.

2. Maximization of Shareholder wealth: Investment decision is linked with strategic and tactical business decisions and therefore need to achieve desired long-term objectives. The most usual objective being the maximization of shareholder wealth.

According to the business dictionary, investment appraisal is the technique used to determine if an investment is going to be profitable or not. Investment decision is extremely vital because it is consistently concerned with the future survival, success and growth of the organisation. The primary objective of an organisation is maximization of shareholder wealth; investment must make not only to maintain shareholder’s wealth but also to increase it. To ensure the maximization objective, it is important that the management managing the organisation make best decision that are based on the best information available and use of the most appropriate appraisal techniques.

An investment also known as a security is a pledge of money from an individual, government, or cooperation that is expected to accrue additional wealth on top of its original dollar amount. An investment can be a long-term or short-term obligation depending on the investor’s goals and/or assets they choose to invest in. The investment decision process is a two-step process which is necessary to make a sound trustable and efficient investment. The first step involves an evaluation of the investment you as the investor are interested in committing money towards, including characteristics of the security (i.e. how it acts in the current market, how the current/future market may react to this investment and possible returns on your investment). Finally, the management of your investment portfolio, including how often it should be revised, how the performance of your securities should be measured (how often they should be measured), and other important aspects of your current investments. Investing revolves around one basic concept, improving our future, investors invest money today to improve their welfare in the future which is why understanding what an investment is and the process of decision making before investing is extremely important.