finance - project appraisal method

2. PAY BACK PERIOD

3. MERITS:-
1. BEST WHEN PROJECT HAVE
SHORTER PERIOD & LESS COST
2. EASY TO OPERATTE & SIMPLE TO
UNDERSTAND
3. HELPS TO ENTERPRENEUR TO
INVEST IN QUICK RETURN FUNDS
PAY BACK PERIOD

4. DEMERITS:-
1. MORE ON LIQUUIDITY THEN
PROFITABILITY
2. NOT COVER THE EARNING BEYOND
PAY BACK PERIOD
3. SUITABLE FOR SMALL PROJECT
4. IGNORES COST OF CAPITAL
PAY BACK PERIOD

5. AVERAGE RATE OF
RETURNS (ARR)

6. MERITS:-
1. SIMPLE TO CALCULATE & EASY TO
UNDERSTAND
2. CONSIDER EARNING OF FULL LIFE
3. HELPS TO COMPARING WITH
OTHER PROJECTS
4. CONSIDER NET EARNINGS AFTER
DEPRECIATION & TAXES
AVERAGE RATE OF
RETURNS (ARR)

7. DEMERITS:-
1. IGNORES TIME VALUE OF MONEY
2. MORE FOCUS ON PROFIT & LOSS
3. NOT CONSIDER RE-INVESTMENT OF
PROFIT OVER YEARS
4. NOT COMPARE BETWEEN SIZE OF
INVESTMENT
AVERAGE RATE OF
RETURNS (ARR)

8.  CONSIDER TIME VALUE OF MONEY
 IT COMPARE RUPEE VALUE OF TODAY & AFTER A YEAR
 CALCULATE BY PRESENT VALUE
 FORMULA:-
WHERE, S= CASH FLOW
N= NO. OF YEARS
R= INTEREST RATE
NET PRESENT VALUE

9. NET PRESENT VALUE
MERITS:-
1. CONSIDER TIME VALUE OF MONEY
2. SCIENTIFIC METHOD
3. COVERS WHOLE PROJECT
4. FUTURE FLOW IN TODAYS VALUE
5. OBJECTIVE OF MAXIMUM
PROFITABILITY

10. NET PRESENT VALUE
DEMERITS:-
1. DIFFICULT TO CALCULATE
2. BIASED TOWARDS SHORT RUN
PROJECTS
3. NOT CONSIDER NON-FINANCIAL
ACTIVITY LIKE MARKETABILITY

11. PROFITABILITY INDEX

12. PROFITABILITY INDEX
MERITS:-
1. CONCEPTUALLY SOUND
2. CONSIDER TIME VALUE OF MONEY
3. FACILITATES RANKING OF
PROJECT

13. PROFITABILITY INDEX
DEMERITS:-
1. COMPUTATION PROCESS IS COMPLEX
2. DIFFERENT INTERPRETATION

14.  USE TIME VALUE OF MONEY
 NPV REDUCE TO ZERO
INTERNAL RATE OF
RETURNS (IRR)

15. INTERNAL RATE OF
RETURNS (IRR)
MERITS:-
1. RECOGNISED TIME VALUE OF
MONEY
2. CONSIDER CASH FLOW FOR WHOLE
LIFE
3. TAKES INTO ACCOUNT TRUE VALUE
OF MONEY
4. OBJECTIVE OF MAXIMISING OWNER’S
WELFARE

16. INTERNAL RATE OF
RETURNS (IRR)
DEMERITS:-
1. DIFFICULT TO UNDERSTAND & USE
2. DECISION MAKING IS DEPENDS ON
THE FUTURE FINANCIAL PROJECTION
3. IT ASSUMES THAT RE-INVESTMENT
RATE OF CASH FLOW IS AT IIR

17. conclusion
Project appraisal is necessary for knowing
project is viable or not?
It is vary useful for entrepreneur.
Various methods to calculate project is viable or
not entrepreneur use the suitable one.