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Project appraisal techniques

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Describe which three of these investment criteria you recommend for use at your current (or a former) company for the selection of investment projects.

a. payback period
b. average accounting return
c. internal rate of return
d. profitability index
e. net present value

Discuss any shortcomings.

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Solution Preview

The following are the 3 methods recommended, the reason of recommendation and their shortcoming.

Net Present Value

Reason to recommend:
- States whether the project will increase the company's value or not
- Considers all cash flows
- Considers time value of money
- Considers the risk of future cash flows by discounting on company's cost of ...

Solution Summary

Solution provides a calculation of the following: payback period, average accounting return, internal rate of return, profitability index and net present value.