The directors of a company require that all investment projects should be evaluated using either

payback period or return on capital employed $($accounting rate of return$).$ The target payback period of

the company is two years and the target return on capital employed is $20\%,$ which is the firms current

return on capital employed. A project is accepted if it satisfies either of these investment criteria.

In addition the directors also require all investment projects to be evaluated using net present value

calculated over a four$-$year planning period, ignoring inflation, any scrap value or working capital

recovery, with a balancing allowance being claimed at the end of the fourth year of operation.

Required:

Critically discuss the directors views on investment appraisal.

Answer rating: 100% (QA)

The directors approach to investment appraisal as described has both strengths and limitations Lets discuss them in detail Strengths 1 Simplicity By l... View the full answer