Determining the net investment
The first step in the investment appraisal is to determine the net investment. Based on the data from the case it is a very straightforward calculation, as there is no sale of any existing equipment or any other adjustments involved.
The business should decide whether to invest $ 7 million for 5 years. Once the investment will have undertaken, the recovery (terminal) value of the expenditure at the end of 5 years are considerably lower than initial investment.
Estimation of cash flows
Real estimates of the cash flows related to an investment project are key to the correct appraisal. It appears that the case Continue reading...