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

1997 Words8 Pages
TRADITIONAL INVESTMENT APPRAISAL TECHNIQUES CANNOT COPE WITH THE FAST CHANGING ENVIRONMENT IN MANUFACTURING INDUSTRY TODAY. Manufacturing industry is brimming with rivalry due to the presentation of new and advanced technologies to help manufacturing processes. These new technologies are capital investment a manufacturing organization must acquire to compete with others in the business. The choice to put resources into these new and advanced technologies requires appropriate investment appraisal techniques that can adapt to the quick changing environment of the manufacturing industry. These choices are vital investment decision. As indicated by Adler R.W (2000), Strategic investment decision making includes the methodology of recognising,…show more content…
• EXPANSION INTO NEW PRODUCT OR BUSINESS: these are expenditure important to deliver another product or to venture into a geographic zone not at present being served. • SAFETY AND/OR NATURAL TASKS: these are expenditure important to consent to government requests, work understandings, or insurance policy to terms fall into this classification. These are regularly called mandatory investment. • OTHER: these are expenditure which include office building, official air craft, parking areas etc. TRADITIONAL INVESTMENT APPRAISAL TECHNIQUES Techniques such as payback period, accounting rate of return (ARR), net present value (NPV), profitability interest (PI) and internal rate of return (IRR) are the traditional techniques used to evaluate or appraise capital investment project. • Payback period: this refers to 'the period it takes the money inflows from a capital investment project to equivalent the money invested in the project, normally expressed in years (CIMA, 2002). The decision when using this technique is to pick the project with the shortest payback. • Accounting Rate of Return: Accounting rate of return, otherwise called the Average rate of return, or ARR is a budgetary proportion utilized as a part of capital planning. The degree does not consider the idea of time estimation of cash. ARR ascertains the return, produced from net pay of the proposed capital speculation. • Net Present Value: this
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