Case Study 03092 Essay Example | Topics and Well Written Essays - 2000 words

Case Study 03092 - canvass ExampleNENE limited is considering investing in one of the two mutually exclusive purges, of import and Beta. The investment decision would be taken on the basis of capital budgeting techniques. The calculations in respect of payback period, chronicle rate of return (ARR) and net present value (NPV) carried out for both the count ons are as followsestablish on the capital budgeting calculations carried out in respect of Alpha and Beta, it can be seen the returns accessible from Alpha are more acceptable and profitable. In terms of the payback period, the company with the lower period is accepted. This would typify that the consider would be able to cover their initial cost of investment within a shorter while and begin providing profits (Shapiro, 2005). Accordingly, Alpha is considered to be a better project. In case of other techniques used, the project with higher(prenominal) ARR and higher NPV is required to be chosen as they indicate higher re turns. In this respect, project Alpha is seen to be better. Hence, the company must consider choosing Alpha and invest in the same (Atrill and McLaney, 2006).account rate of return can be expressed as the percentage or ratio mingled with the average profit earned from a project with the average investments made in the same. In simpler words, it explains the returns available from a project on an annual basis. In case of mutually exclusive projects, the one with the higher ARR has greater chances of being selected. In case of a single project, higher ARR would indicate that the project would convey more value to the organization (Marino and Matsusaka, 2005). The ARR technique of capital budgeting is simple and involves less calculations (Bierman Jr and Smidt, 2012).However, a major injustice of the ARR method of project appraisal is that it does not take into consideration the time value of money. A project which