Critically discuss the various aspects of capital investment appraisal and explain how you could evaluate an investment proposal in a food manufacturing business environment. Use relevant literature and real business examples to support your discussion. In choosing your business examples, please do not use examples provided in class, textbooks or other sources.
BLL is considering a project that would require an initial investment of $300,000 and would have a useful life of 6 years. The annual cash receipts would be $156,000 and the annual cash expenses would be $60,000. The salvage value of the assets used in the project would be $20,000. The company’s tax rate is 30%. For tax purposes, the entire initial investment without any reduction for salvage value will be depreciated over 6 years. The company uses a discount rate of 10%.
net present value
accounting rate of return
Should the project be accepted? Why?
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