a) Students will require to carry out a full quantitative investment appraisal:
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Project HK
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Project UK
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Payback
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2 years, 7 months
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2 years
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ARR
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22.5%
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20.83%
|
|
NPV
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$21,141
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$19,990
|
- Based on the financial data, Project UK has a shorter payback (by just over 6 months), so if liquidity is an issue, then the firm should choose for this venture.
- However, the ARR is higher if the firm opts for Project HK; although both are considerably higher than any return from savings at a bank
- The NPV is elevated for Project HK (by a $1241 or 6.23%)
- Overall, on financial grounds, Project HK seems the improved option if the business is prepared to wait a further 6 months or so before it accomplish payback.
In addition, investment assessment methods should consider the qualitative factors (the PORSCHE mnemonic) that affect the business and the investment. For example, there needs to be a consideration of organizational the views of stakeholders and objectives.