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.
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
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