Financial Assignment Research Paper Example | Topics and Well Written Essays - 1000 words

Financial Assignment - Research Paper ExampleThe pay back period for project 1 is 2 years and 2 months while the payback period for project 2 is 3 years and 8 months. Judging from the payback period, project 1 is much favorable as there is little risk involved when analysed with the risks of project 2. The initial outlay is recovered earlier by project 1. Moreover, the ARR as well as favors Project 1, therefore the expected profitability of the project is higher than the profitability of project 2.TASK 2 UNDISCOUNTED CASH FLOW - PAY BACK decimal pointYEARSPROJECT 1CASH INFLOW/ OUTFLOWBALANCEPROJECT 2CASH INFLOW/ OUTFLOWBALANCE0(90,000)(90000)(90000)(90000)120000(70000)10000(80000)2800001000040000(40000)345000550004000004400004000052000020000The payback period for Project 1 is 1 year and 11 months. Working 70000 80000 12 months.The payback period for Project 2 is 2 years.If the time apprise of money is ignored, Project 1 is again more profitable as it involves less risk as compa red to the undertaken of Project 2 which has a higher payback period.TASK 3 ADVANTAGES AND DISADVANTAGESDISCOUNTED CASH FLOWThe method takes into the nib the time value of money.It produces more meaningful results than the payback period.It is more complicated than ARR and Payback and requires a number of calculations if solved manually.PAYBACKIt is simple to calculate.Calculation of net cash flows is more objective than calculation of profitability.It indicates the project with the least risk.It ignores the life expectancy of a project.Two projects may have a equal payback period horizontal though the pattern of cash inflows may be different.It ignores the time value of money.ACCOUNTING RATE OF RETURNIt is easy to calculate.It can be used to compare the expected profitability of a project with the present profitability of the business.It is based on average annual profit which may not be similar for each year.The timing of cash flows is ignored.It also ignores the time value of money.There is no commonly accepted method of calculating capital employed.It takes no account of the duration of the project.ReferencesDiscounted cash flow. (2007). Retrieved August 17, 2007, from Investopedia Web site http//www.investopedia.com/terms/d/dcf.aspPayback Period. (2007). Retrieved August 17, 2007, from 12 manage http//www.12manage.com/methods_payback_period.htmlRandall, H. (1996). Capital Expenditure Appraisal.