Essay Zone.com - Free essays!
REGISTER NOW!
Login to an existing account
     
GCSE essays
A Level essays
University essays
Forum
Why join?
Essay quality
FAQ

Search forums
About us
Contact us

 

 
Archer Free essay! Download now

Home > University > Economics > Archer

Archer

You can download this essay for free. All you need to do is register and submit at least one of your essays to us.

Or you can purchase this essay for just $2 instantly without registering

Downloads to date: N/A | Words: 2201 | Submitted: 23-Jan-2013
Spelling accuracy: 98.3% | Number of pages: 6 | Filetype: Word .doc


This is what the first 3 pages of the essay look like

Archer essay previewArcher essay previewArcher essay preview

Description

Investment Appraisal Accounting Essay

Preview

Archerís Organic Foods plc - Investment appraisals of two farms
I. Introduction
Archerís Organic Foods plc is a producer and distributor of organic foods. The company is looking to expand the business by acquiring a farm in the North of England. This report analyses the financial viability of two farms by using a number of investment appraisal methods. The two farms differ in their initial investments, sales and costs. The freehold of option 1 farm will be acquired at the beginning of the project. The farm in option 2 will be taken on a 10-year lease with deposit and annual rent payments. The report makes a recommendation on the final selection of a farm by evaluating the results, strengths and weaknesses of four investment appraisal methods.

The four investment appraisal methods used in this report are the Accounting Rate of Return (ARR), payback period, Net Present Value (NPV) and Internal Rate of Return (IRR). The results of the four investment appraisal methods may not be similar because of differences in their approaches and calculations. Hence, it is beneficial to use more than one investment appraisal method and understand the benefits and limitations of each method before making a final decision.
II. Investment appraisal methods
The four investment appraisal methods can be classified into two main categories. The ARR and payback period are non-discounting methods whereas the NPV and IRR are discounting methods. The ARR method measures the accounting profit rate by dividing the average income by the average investment (Hansen and Mowen, 2007, p. 568). The method is simple to use but has major limitations. It ignores the time value of money which is a major drawback in case of projects with long lives. Also, a benchmark rate is required for comparison.
The payback period calculates the time required to recover initial investment from the operating cash flows of a project (Brigham and Houston, 2007, p. 373). Shorter payback period projects are preferred as they generate cash equal to initial investment in a shorter duration and this can be viewed as a proxy of risk.
However, the payback period method ignores the time value of money (Kinney & Raiborn, 2011, p. 655). It also ignores the cash flows after the payback period which could result in a selection of a project that adds less value.
The NPV method calculates the net value of a project by discounting the cash flows at a rate which reflects the risks of those cash flows. The discounting of the future cash flows is a major advantage of the NPV method over the non-discounting methods. This is very important for valuing the two alternatives as cash flows are spread over 10 years.
The drawback of the NPV method is ...

Download this essay in full now!

Just upload at one of your essays to our database and instantly download your selection! Registration takes seconds

Or you can download this essay for $2 immediately without registering


Comments and reviews

Reviews are written by members who have downloaded the essay

No comments yet. If you download the essay you can review it afterwards.