Universal Manufacturing Technology Limited’s CEO has decided to purchase a few machineries to improve the company’s operations. However, he is uncertain how to evaluate the machineries.
He has asked your advice on the various techniques to evaluate the investment. Discuss the several methods of investment appraisal techniques considering the methods using time value of money and not using time value of money.
Beside the above, the CEO is also keen to know about the following terms:
(a) Sunk Cost
(b) Relevant Cost
(c) Incremental Cost
(d) Opportunity Cost
In your discussion to the above terms, use appropriate examples.
One of the key areas of long-term decision-making that firms must tackle is that of investment the need to commit funds by purchasing land, buildings, machinery and so on, in anticipation of being able to earn an income greater than the funds committed. In order to handle these decisions, firms have to make an assessment…