Understanding the Concepts - Essay Example

Comments (0) Cite this document
Summary
Capital projects can be analyzed using six different methods, which are internal rate of return, (IRR), net present value (NPV), profitability index (PI), modified internal rate of return (MIRR), discounted payback, and payback. NPV is used to estimate discounts and cash flows…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.1% of users find it useful
Understanding the Concepts
Read TextPreview

Extract of sample "Understanding the Concepts"

Download file to see previous pages A negative NPV means that the investment has limited chances of accessing its investment capital. NPV is the best approach that an investor can use to determine whether a certain project will be profitable or not. The payback rule is a method that tells the investor the amount of time that a project will take before it recaptures the cost of investment. This does not take into account the time value of money. In addition, cash inflows after the investment cost is recovered are not considered. Moreover, the value the project will offer to the shareholders is not considered when using payback rule (Rudolf, 2008).
When comparing NPV and payback rule it has to be noted that NPV takes into consideration assessing of new investments and comparing them with the other investment alternatives. At the end of the day, the investment that presents the highest net present value is the one that the investor has to go for. This will ensure that the investor gets the highest return from the project. Net present value method is an easy process that presents straightforward explanation of the investment capital value because it expresses it in monetary units. Another advantage is the possibility of adapting the discount rates for different periods. The investment with the highest NPV is what is most preferred by any investor who wants to stay in the competitive world of business. NPV offers an easy way of interpreting investment because it assigns monetary units on the capital value (Rudolf, 2008).
On the other hand, payback rule gives the time that an investment will get back the invested capital without assigning any monetary units to the capital. The investment that offers the shortest payback time is the most preferred by the investors. Comparison of alternatives is possible when using the payback rule because it is used to assess the risks of the investment. This method is highly applicable in large companies, which do ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Understanding the Concepts Essay Example | Topics and Well Written Essays - 1000 words - 3”, n.d.)
Understanding the Concepts Essay Example | Topics and Well Written Essays - 1000 words - 3. Retrieved from https://studentshare.org/miscellaneous/1601369-understanding-the-concepts
(Understanding the Concepts Essay Example | Topics and Well Written Essays - 1000 Words - 3)
Understanding the Concepts Essay Example | Topics and Well Written Essays - 1000 Words - 3. https://studentshare.org/miscellaneous/1601369-understanding-the-concepts.
“Understanding the Concepts Essay Example | Topics and Well Written Essays - 1000 Words - 3”, n.d. https://studentshare.org/miscellaneous/1601369-understanding-the-concepts.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Understanding the Concepts

Understanding the Concepts

...? Understanding the Concepts Introduction: While making financial plans for any business, it is highly necessary to understand certain concepts related to the financial topics. This is primarily because in case of business, matters of investments and returns are of serious concerned issues. Hence without understanding the different concepts of financing and their results, it would become difficult to realize and come to proper financial decisions. The present study focuses on the understanding of different concepts of finance that a small business owner would require in his/her decisions and include...
4 Pages(1000 words)Essay

Understanding the Concepts

...? Understanding the Concepts Understanding the Concepts Financial ratios are mathematical comparisons of financial entries that are made from an organizations financial statement. These ratios helps an organization to make financial, management and investment decisions, since they present information based on the time value of money, where the present value differs from the future money value (Bangs, 1992). Financial ratios serve to help a business monitor its progress, noticing all the trends and the factors inhibiting its desired performance. There are various financial ratios that are key to the running of a small business. These ratios include the current ratios, which are applied to measure the liquidity of a business, thus... ...
4 Pages(1000 words)Assignment

Understanding the Concepts

...? Organizations must evaluate and analyze the financial results of the firm. A quantitative technique that can be used to evaluate financial results is ratio analysis. There are five categories of ratios. The five categories of ratios are profitability, liquidity, leverage, efficiency, and market (Ratioanalysis, 2012). As a small business an important ratio category to consider is the liquidity of the business. A company that is liquid has sufficient cash to pay for all the expenses of the firm during a period. The current ratio is calculated by dividing current assets by current liabilities. A current ratio is considered good if is above 1.0. Another ratio of importance for small business owners is net margin. The net margin... Organizations ...
3 Pages(750 words)Essay

Assignment: Understanding the Concepts

...? Understanding the Concepts in Finance and Accounting Imagine you are a small business owner. Thoroughly determine the financial ratios that are important to the business. Compare your ratios with those that are important to a manager of a larger corporation. Financial ratios are tools used in large, medium and small size businesses to evaluate their financial performance and progress by looking on their income statements, as well as statement of financial position in comparing current and previous performance (New South Wales Government, 2012).The most common financial ratios used by small business include: solvency ratios, profitability ratios and liquidity ratios to name just but a few. Solvency...
4 Pages(1000 words)Essay

Understanding the concepts

...? UNDERSTANDING THE CONCEPTS Imagine you are a small business owner. Determine the financial ratios that are important to the business. Compare your ratios with those that are important to a manager of a larger corporation. Ans: For a small business owner, the following ratios are important to him and he will compare these ratios with that of ratios of larger corporation in the following manner-Current ratio = current assets/current liabilities. This ratio will be compared between the two firms to check the liquidity position or short term solvency of firm. The ideal current ratio is 2:1. Debt equity ratio = long term debt/shareholders fund. It will be compared to check the claim of outsiders and owners...
4 Pages(1000 words)Essay

Assignment: Understanding the Concepts

... Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity. The primary reason to conducta ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of the financial feasibility. The ratios can be divided into various categories such as profitability, gearing and liquidity, each focusing on a different area of the financial outlook of the organization and highlighting the company’s performance. These analysis form an integral part of the financial statement analysis, especially from the investors point of view, who always strive to invest in companies having strengthened... Ratio analysis...
4 Pages(1000 words)Research Paper

Understanding the concepts

...Operations Management (Add (Add (Add Operations Management Both Net Present Value (NPV) and payback method canbe employed to make a good financial decision. As Sherrick, Ellinger, & Lins (2000) point out, the NPV method gives first priority to currency value while the payback method emphasizes the time required for achieving a return on the investment. As compared to concepts like time value of the money, present and future value, inflation and other financing factors the NPV method is more suitable for making good financial decisions since the payback method does not take those aspects into account. However, both of the tools are used to estimate the future returns and thereby the potential of the proposed investment. And, thus... , it...
2 Pages(500 words)Essay

Understanding the Concepts

...Understanding the Concepts Introduction: Financial ratios are determined in order to reflect on a company’s financial status. The current study focuses on the necessary ratios needed to understand the status of a small corporation and compare it with ratios required for large corporations. Financial Ratios: In regard to a small corporation it can be realized that highly sophisticated methods of financial control are not necessary. Hence financial ratios that are the basic to the need of an understanding of the financial status are applied in smaller organizations that present an analysis of the profits and debt, assets and equity status of the company. These include the...
1 Pages(250 words)Essay

Understanding the Concepts

...and incremental costs are important in determining if the company will continue with a particular product or service. References Cressman, G. E. (2009). Why pricing strategies fail. The Journal of Professional Pricing, 18-22. Finkler, S. A. & Ward, D. M. (1999). Cost accounting for health care organizations: Concepts and applications. Sudbury, MA: Jones & Bartlett Learning. Glick, N. D., McCue, M. J., & Zelman, W. N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts and applications. Hoboken, NJ: John Wiley & Sons. Jawahar-Lal. (2009). Cost accounting. New Delhi, India: Tata McGraw-Hill Education. Kotas, R. (1999). Management accounting for...
6 Pages(1500 words)Essay

Understanding the Concepts

...Understanding the Concepts al Affiliation) I was browsing through a random Facebook page and met new people who had similar interests to mine or so I thought. I added one into my friends list hoping that we would be able to share a lot due to the impression he had given me. During the interaction on the Facebook page, he shared a lot about his passion of creating a global network of friends because he spent most of his time on the web. He was looking to have a network of friends across the world as he was an information technology student and would be spending most of his time on the computer. I was moved by his ambition because it would require him to be able to adapt to multiple cultures that exist across the world or he would... to most...
2 Pages(500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Understanding the Concepts for FREE!

Contact Us