Corporate Accounting Investment Analysis

General information for the business: Fictional Company Investment Analysis
Industry: Business
Description of support work: PLC Plc, a large manufacturing company listed in BIG Exchange, is considering whether or not to invest in a newly developed technology that will help reduce costs, achieve efficiency and improve product quality at its plants. The company will have to raise £1.2 million to finance the project.

There are various options open to the company to finance the project. It could:
1. Raise the money through rights issue;
2. Seek funds from banks at the current rate of 8% per annum;
3. Borrow the money directly from the debt markets by issuing Debenture;

The following cash flows are estimated:
Initial outlay (£1,200,000)
Year 1 £200,000
Year 2 £250,000
Year 3 £470,000
Year 4 £451,000
Year 5 £100,00
Residual value £142,242

Existing and potential investors would like to have a rate of return of 10% per annum on capital investments. PLC Plc usually looks for a payback period of 5 years on projects of this type.

Required

1. Use any 3 investment appraisal methods to assess the viability of the project.

2. Write a report to the Directors explaining whether the company should undertake the project or look for other opportunities



3. In your report you should
• Explain why you selected the methods used in (1)
• Select any other relevant considerations and financial information that could be useful in decision making;
• Explain which appraisal methods are widely used in the industry

(Approximate length 2,000 words)
Extra notes: