REPORT ON INVESTMENT DECISION FOR GREINAM INTERNATIONAL

Table of Contents

Executive Summary 1
1. Introduction 1
2. Basis of Investment Decision 1
3. Figures produced by financial accountants 2
4. Rate of Return on investment 5
5. Net Present Value of the project 6
6. Conclusion and Recommendation 8
References 9
Executive Summary

The purpose of this report is to discuss the investment decision regarding the project for the manufacture of new product. I will start by critically analyzing the basis on which current investment decisions are made by the company followed by a review on the figures produced by the financial accountants. I will then present my views on the minimum return that is required on this project and then explain the computation that I have made using the Discounted Cash Flow (DCF) techniques. Finally, I will recommend to you whether to go ahead with the project or not.

1. Introduction

Our company, Greinam International is considering investing ₤ 840,000 in new machinery to be used in the manufacturing of one of the company’s products. The information available for this project is not to the satisfaction of our management group and therefore needs a review from the management accountant. The Payback method may not be the correct way of valuing such major investment project and therefore we will use DCF method which is commonly used to appraise investment project. There are a number of elements which have cropped up during my meetings with my colleague managers and same have been duly considered in my analysis before making any recommendation.

2. Basis of Investment Decision

Currently investment decisions are made based on a payback period of three years. The advantage of using Payback period is that it is easy to use and anybody having limited financial knowledge can apply it especially where a company does not want to take risk and