Discuss how the following factors could impact an Investment Decision: Risk and Uncertainty Length of Project Size of investment project Economic and Market environment Experience and technical knowledge of Management
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QUESTION FOUR
Discuss how the following factors could impact an Investment Decision:
- Risk and Uncertainty
- Length of Project
- Size of investment project
- Economic and
Market environment - Experience and technical knowledge of Management
Step by step
Solved in 2 steps
- Required: (a) Calculate the payback period, accounting rate of return and net present value of each of thepotential projects.(b) Explain which of the three potential investment projects should be undertaken. Yourexplanation should be based on the results of your calculations in part (a).|(c) Critically discuss the approaches to investment appraisal used in part (a). As part of yourcritical evaluation, identify what additional information might be used to improve the approachto investment appraisal.Critically evaluate the influencing investment decision-makinga. Outline the three main forms of business organisation and critically discuss the benefits and drawbacks associated with each.b. Discuss and critically compare sensitivity analysis and scenario analysis as means of estimating a project’s risk.c. Clearly explain the difference between systematic risk and non-systematic risk and discuss the relationship between beta and the expected rate of return on an investment.
- Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value.Critically evaluate the sunk cost fallacy influencing investment decision-makingWhich of the following statements is true regarding the sensitivity analysis approach to investment appraisal? a. It involves changing many factors at the same time b. It provides an indication of the likelihood of changes in the key factors c. It provides managers with clear guidance concerning the investment decision d. It is commonly called ‘how-now’ analysis e. Noneoftheabovearetrue
- Critically evaluate the behavioural factors influencing investment decision makingComment on the use of probability in investment decision process.Comparing Investment Decision Criterion. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criteria for accepting or rejecting independent and mutually exclusive projects under each rule. Payback period Modified Internal rate of return Internal rate of return Profitability index Net present value
- Critically evaluate how the Representativeness heuristic influences investment decision-making.State the decision rule used to accept or reject an investment proposal under each of these methods of analysis: (1) net-present-value method and (2) internal-rate-ofreturn method.Explain the investment management process