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The most crucial part for an organisation is always to take investment decisions. It requires lot of consideration of the factors such as market risk, politics and of course the rate of return as they are exposed highly in terms of finance (Ye & Tiong, 2000). There are many methods which gives the organisation the symmetries between the economic levers and financial limits and as a comprehensive perspective to investment decisions and the enchantment of companies value (Martin, 2020).
In the current scenario of KIBT Ltd, the company should go with “Project B” and invest in that plan as per the cash flow structure has been shown in the table mentioned below.
year |
Project A |
12% Return |
Project B |
12% Return |
0 |
660000 |
950000 |
||
1 |
250000 |
223214.286 |
190000 |
169642.857 |
2 |
190000 |
169642.857 |
170000 |
151785.714 |
3 |
180000 |
160714.286 |
180000 |
160714.286 |
4 |
160000 |
142857.143 |
260000 |
232142.857 |
5 |
120000 |
107142.857 |
570000 |
508928.571 |
6 |
140000 |
125000 |
320000 |
285714.286 |
Total Cash Inflow |
268571 |
558928 |
Here, the firm has a requirement of 12 per cent return which gives them a high cash inflow in Project B as you can see the table above with the help of Net Present Value (NPV) method which helps to evaluate between two hypothetical power projects that show the NPV risks involvement and provide a better decision to the organisation.
So, after all the evaluation by the team, we recommend KIBT Ltd to invest on Project B here.
Martin.Y., (2020). An investigation on the net present value. A Mathematical Theory of Accounting and Financial Value, 1-44. http://dx.doi.org/10.2139/ssrn.3123550
Ye.S & Tiong.R., (2000). NPV-at-Risk Method in infrastructure project investment evaluation. Journal of Construction Engineering and Management, 126 (3), 1-10. https://doi.org/10.1061/(ASCE)0733-9364(2000)126:3(227)
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