Introduction
Unit 2 Managing Financial Resources and Decisions Solution Assignment Help Online
The company’s financial statements assist its many stakeholders in providing a variety of information about the organisation. The stakeholder can interpret the performance of the business using the various ratio analyses. The investment appraisal technique aids the business owner in numerous business-related decisions.
Task 2
Q1 Investment appraisal techniques
The Midway Limited uses this vital technique to effectively and economically use its resources in long-term investments from which it will reap rewards over an extended period of time. With regard to making investing decisions, there is always uncertainty associated with the numerous options available to the Midway limited. With the help of the investment evaluation decision, long-term fund investments can be made in anticipation of anticipated future cash flows. It aids in changing the fundamental nature of the businesses. The decision typically entails an irreversible outflow of funds. When assessing the investment proposal, it is important to keep the following aspects of investment assessment judgments in mind:
Investments ought to be made with the long term in mind.
Over the course of the project, benefits that arise from business operations will be evaluated.
The benefits that will accrue in the future are exchanged for the current investments made.
Before deciding whether or not to accept the proposal, it is important to consider the profitability of alternative capital expenditure options. This will allow us to determine whether or not to accept the plan. We have a number of approaches at our disposal under investment assessment techniques for the evaluation of investment-related decisions in the projected capital expenditure. Any technique that determines the selection of alternatives may be employed. There may occasionally be a choice between two or more options.
The suggestions that generate higher profits should be prioritised over those that either generate no profits or generate less earnings than the previous best choice (Hosoya & Yashima, 2013). Following are some strategies or methods that may be taken into account while assessing the investment assessment decision:
Unit 2 Managing Financial Resources and Decisions Solution Assignment Help Online
Facts pertaining to the issue: A manufacturing business named Midway Limited has two investment options at its disposal. The corporation has a choice between the two possibilities. Both initiatives call on the company to invest in specific machinery at a cost of £125,000. It has also been expected that inflow will come to the company at the end of the year, with outflow occurring on January 1 of each year as a given.
The second proposal calls for the purchase of machine 2, which will cost the business £125,000 and generate income over the course of six years. At the conclusion of the sixth year, there will be no scrap or residual value.
The cost of injecting capital into the company is 20%, and Midway Limited adopts the straight line technique of depreciation, according to the problem.
Solution: The most significant, well-liked, and frequently applied approach for calculating the investment evaluation procedure is the payback period method. The amount of time in years it takes a company’s initial investment in net cash flows to be recovered. It is computed by dividing the cash inflows after taxes associated with the outcomes or performance of investments undertaken over time.
Q2 Limitation on relying on financial ratios to interpret firm’s performance
Ratio analysis has several constraints. The following discusses a few of them.
Financial ratio analysis is essentially a method for gathering and analysing information based on an organization’s financial statements; ratio analysis has no replacements. Ratio become meaningless if they are displayed independently of the sentences from which they were computed.
Ratios are merely a tool for managing financial analyses; they are not a goal in and of themselves. Ratios must be understood, and various individuals may do so in different ways (McCluskey, et. al., 2014).
Window dressing: Financial statements may be altered to give the outside world a more accurate impression of the enterprise’s finances and profitability status. Therefore, when calculating ratios from these financial accounts, one must be extremely careful and diligent.
Absolute data that are misleading lack actual data, leaving the size of the business uncertain. For instance, if two distinct firms’ 10% gross profit ratios are provided to us,
Conclusion
Therefore, it is possible to draw the conclusion that the ratio analysis aids many stakeholders in making a variety of business-related decisions. To assess the viability of any project, the management of the business strategy might employ a variety of investment assessment approaches.
References
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Unit 2 Managing Financial Resources and Decisions Solution Assignment Help Online
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Unit 2 Managing Financial Resources and Decisions Solution Assignment Help Online
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