Project Evaluation Math Problem Example | Topics and Well Written Essays - 1250 words

Project Evaluation - Math Problem ExampleThe different option that Salsbury has is to open a wellness and fitness complex and it has a NPV of ?700,000. Furthermore, the report justifies the technique that has been utilise in order to evaluate the determine by comparing it with other project evaluation techniques much(prenominal) as Accounting dictate of cede and Profitability Index. Moreover, the report then discusses other factors that the organization ask to choose while making the investment decision. ANALYSING THE FEASIBILITY OF THE PROJECT Net present value (NPV) is the technique that has been used to analyze the feasibility of the project. NPV shows the terminate future cash flows of the project after being push asideed with the discount gait so that the present value or present worth of the cash flows can be calculated (McLaney, 2009). In the appendix 1 of the report, the forecasted cash flows for the 10 years are calculated and net present value of these cash flo ws are calculated with the discount rate of 14%. ... is higher than wellness and fitness complex, therefore the management should invest in opening a retail store than the health and fitness complex as it has higher NPV and projects with higher NPV should be accepted (Jensen, 2001). JUSTIFICATION ABOUT THE system USED TO EVALUATE THE PROJECT The management has used Net Present Value method acting to evaluate whether the project is feasible or not. Although there are different project appraisal techniques such as Accenting Rate of Return (ARR), Payback Period, Profitability Index, Benefit to Cost Ratio (BCR), Internal Rate of Return and discounted payback finish etc. However, the report discusses dickens of these techniques ARR ad Profitability Index and compares these two techniques with NPV and justifies why NPV is a good method used to evaluate the feasibility of the project. NPV and Accounting Rate of Return Accounting Rate of Return (ARR) is the average fall out that the pro ject would yield throughout its time period (Gitman, 2003). It can be calculated using the formula below By using the above formula, ARR of the project is 27.24% It is better to use NPV than Accounting Rate of Return (ARR) as the NPV discounts the future cash flows whereas the ARR does not consider the time value of money. Therefore it is better for the management to use NPV as it will show the accepted value or worth of the project by considering the discount rate and even inflation rate but these rates are not considered by using the ARR. NPV and Profitability Index The other method that has been used to evaluate the feasibility of the project is the profitability index. Profitability index is calculated by pastime formula The formula shows that profitability index considers the time value of money which accounting rate of return does not. Therefore it