Prepare an advisory report for the management that includes a theoretical background to

the three investment decision criteria you have used for analyses, a comparison
among these methodologies, a note on why these criteria is superior to accounting
Rate of Return and Payback Period used by some firms, and finally an analysis of
the problem and specific recommendations on the proposal, which integrates all the
calculations and tabulations?
If the goal of management is to create value for the shareholders, it is necessary to make
decisions that are based on a measurement of value. We use the investment decisions, such as
return on investment, discounted cash flow measures, IRR, PI, and net present value. The
difference between the two is that the discounted cash flow measures account for the time value
of money, whereas the other does not. The payback period and the return on investment are two
accounting measures. These have the advantage that they are easy to calculate and intuitively
easy to interpret. However, for major capital projects that are expected to last several years,
discounted cash flow techniques are preferred.
The two most popular discounted cash flow techniques are the net present value and the internal
rate of return. Other techniques that are discussed are, amongst others, the benefit-cost ratio, and
the equivalent annual charge. The accounting rate of return (ARR) calculates the return on
investment considering changes to net income. It Indicates how much extra income the company
expects if it undertakes the proposed project. The payback period includes the fact that it is a
very simple method to calculate the period required. A longer payback period indicates capital is
tied up. Focus on early payback can enhance liquidity. Investment risk can be assessed through
the payback method. ARR compares income to the initial investment rather than cash flows.
They both measure the average profitability over the asset's life. They both focus on the time to
recover the initial investment.
we calculated initial outlays from the cash flow of the old plant, and the cash flow of the new
plant which is more than the old plant. Incremental cash flows determine the potential increase or
decrease in a company's cash flow related to the acceptance of a new project or investment in a
new asset. then calculated the Terminal cash flows are cash flows at the end of the project after
all taxes are deducted. then we find NPV, IRR, and PI.NPV calculates the present value of future
cash flows. IRR ignores the present value of future cash flows. PB method also ignores the
present value of future cash flows. The PI method calculates the present value of future cash
flows. The new project is more expensive and profitable in incremental projects.