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Finacial management - Essay Example

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Investment Opportunities author elected a recent example of the long-term investment made by governmental institution (here and after referred to as government department (A). The objective of the investment project(s) elected is to provide modern office accommodation for department (A)'s staff in a manner which represents value for money…
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Finacial management
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Finacial management

Download file to see previous pages... Therefore, as a matter of investment objectives, the study turns to somewhat outrule the relevance of Payback Period, Internal rate of return (IRR) and Overall rate of return (ORR) investment appraisal techniques and invites to focus on Life-Cycle/Whole life Cost Analysis (LCCA/WLCA), NPV, Net Benefits (NB) and Net Savings (NS), Benefit-to-cost ratio (BCR) and Savings-to-investment ratio (SIR) appraisal techniques. Term 'somewhat' in this case refers to the existence of profit-bearing or cash inflow-bearing opportunities connected with letting office space to another governmental institution (department (A)) for a rent paid yearly.
There are many methods available to calculate specific economic performance measures. Used appropriately, these methods allow the investor to analyze the economic consequences of particular decisions and fairly evaluate alternative approaches. The various economic analysis methods include:
Net Benefits (NB) and Net Savings (NS) are analytical methods used to describe time-adjusted economic benefits or savings between competing alternatives. NB is used to examine how costs of competing alternatives impact investment opportunities (e.g. ...
NB is used to examine how costs of competing alternatives impact investment opportunities (e.g. real estate income or factory output) measured in positive outcomes relative to a base case. The NS method is the NB method recast to fit the situation where there are no important benefits in terms of revenue, but there are reductions in future costs (savings).
Benefit-to-cost ratio (BCR) and Savings-to-investment ratio (SIR) are numerical ratios whose size indicates the economic performance of an investment. For example, a BCR of 1.5 means that one can expect to realize $1.50 for every $1.00 invested in the project over and above the required (baseline) rate of return. A primary application of BCR and SIR is to set funding priorities among competing projects when there is a limited overall program budget.
Internal rate of return (IRR) is a measure of the annual percentage yield on investment. The IRR is compared against the investor's minimum acceptable rate of return to determine the economic attractiveness of the investment. This often misunderstood method is primarily used in Pro forma analysis in industrial and financial circles.
Overall rate of return (ORR) is the annual yield from a project over the study period, taking into account reinvestment of interim receipts. Project earnings and earnings from reinvestment are accumulated to the end of the study period and set equal to the present value of cost to compute the ORR. This method offers another means of analyzing and ranking the economic performance expectations of competing alternatives.
Discounted payback (DPB) and Simple payback (SPB) measure the time required to recover investment costs. If one ignores the time value of money (assume a zero discount rate), the method is called ...Download file to see next pagesRead More
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