Question

Of the four popular investment appraisal technique, recommend either one or two techniques that shall remain most useful when examining the current expectations of shareholders particularly when reviewing ROI impact surrounding capital investments? Is it really essential to consider economic factors and business conditions apart from following changes in social, environmental and political uncertainties, apart fromfactoring ‘time value of money’ considerations’, when estimating FV of ‘cash flows’, analyze ‘opportunity costs’ and the ‘eventual financial health of the organization’ to support a risk free judgement for backing capital investment decision-making?.

Let’s say if we are ignore these factors….would organizational leaders run the risk of bankruptcy or worse still a financial irreversible calamity?...

Answer 1

The most important Investment Appraisal technique is Net Present Value of the Investment. This calculates the today's value of an investment, it considers the PVF (Present value factor) to calculate the present value of tomorrow's earnings. It is really essential to calculate the PV of an investment considering the rate of interest ongoing in the market.

While calculating the worth of an investment, it is essential to consider the economic factors, although eventual financial health of the organization would led to the exact results of the investment, but economic factors can help the best to calculate the present worth of an investment.

Ignoring the factors can run the risk of bankruptcy depending upon the conditions of the company or sector of business.

(For Eg., if you know that you can have 2 millions after 3 months or 2 millions after 5 years, why would you go for the second opinion)