The directors of a company require that all investment projects should be evaluated using either payback period
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Question:
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 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 fouryear 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.
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