Valuation methods and approaches tehcniques of tesco plc - Essay Example

Tesco plc is a super market firm in the London Stock Exchange, and it is very essential to evaluate the financial approaches and techniques of the entity. Capital budgeting of an entity means planning for capital assets. The decision about capital budgeting helps to determine whether or not the money should be invested in long term projects. As far as the Research and Development projects of Tesco plc is taken in to consideration, for the purpose of taking the better decision, the fundamental project evaluation techniques like Pay back period, ARR (Accounting or Average Rate of Return), NPV (Net Present Value), or IRR (Internal Rate of Return) is applicable.

From this fact it is clear that under the present value method, the present value of all cash in flows is compared against the present value of all cash outflows. The difference between the present value of cash inflows and out flows are known as the net present value. The discount rate for obtaining the present value is some desired rate of return which may be equal to the cost of capital of a company. In addition to this, it is necessary to consider about the concepts like book value, market value, present value, price earning ratio etc.

for analyzing the financial viability of Tesco plc. There is a great difference between both concepts like book value as well as market value in case of accounting point of view. The weights to be used can be either book value weights or market value weights. Book value weights are easier to calculate and can be applied consistently. Market value weights are supposed to be superior to book value weights as component costs are opportunity costs and market values reflect economic values. However these weights fluctuate frequently and fluctuations are wide in nature.

Both the concept of book value and market value is differ, because book value of the firm or book value weights remains constant, but the market value weights are goes on fluctuating. While computing WACC,