Introduction

Investment is the means to obtain an additional income source for each individual or

company to find its way in the distant or near future. Therefore, the evaluation of capital

investment is considered a planning process used or helps determine the company’s

investment in the long and short term separately, Capital Investment. (2019).

Several different methods are used to determine the viability of that investment as a

successful investment or not, such as net present value (NPV), internal rate of return (IRR),

payback period, profitability index, and others.

This report will look at the first three methods, NPV, IRR, and payback period, for AYR

analysis. Note that AYR aims to increase its market share, so we will direct the investigation

to determine the project’s ability to increase cash flow. Through AYR’s interest in two

different and separate projects known as “Aspire” and “Wolf,” each of these projects can

achieve the company’s goal of increasing its market share. According to USW (2019), it also

invested $ 120,000 in market research to analyze each project’s opportunity and feasibility

separately. We will also address other factors that are more strategic to clarify which projects

are more appropriate with AYR, bearing in mind that the company can implement only one

project at present.

Methodology

To assess capital investments, we will use three globally accepted methods: net present value

(NPV), internal rate of return (IRR), and the Payback period, as mentioned above. There are

detailed accounts attached to this report that explain the mathematical methods for evaluating

the investment.

Net Present Value (NPV)

Based on (Ross, Westerfield, Jordan, 2016), the net present value shows the difference

between the investment’s market value and its cost. In other words, the net present value, in

the account, is defined as the present value of future cash flows discounting the invested

capital (capital investment assessment, 2010), as shown in the equation below

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AF4S31 Assessment 2: Strategic Financial Management