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Capital Budgeting


Task 5: Investment Appraisal (LO5) Be able to use financial appraisal techniques to make strategic investment decisions for an organisation Scenario 6 Sandyfoot Ltd is considering two capital expenditure proposals. Both proposals for Tennis Racquets and both are expected to operate for four years. Only one proposal can be expected. The Following information is available Profit/(Loss) after Depreciation Proposal A Proposal B £ £ Initial Investment 36,000 36,000 Year 1 6,500 4,500 Year 2 3,500 2,500 Year 3 13,500 4,500 Year 4 -1,500 14,500 Estimated Scrap value at end of yr 4 3,000 3,000 Based on the Information above you are required to: 5.1 Identify two advantages and disadvantages of financial appraisal methods to analyse competing investment projects in the public and private sector 5.2Make a justified strategic investment decision for Sandyfoot Ltd with the use of the above relevant financial information by calculating payback period and return on capital employed 5.3 Write a brief report to the board of directors of Sandyfoot Ltd by highlighting the other factors that need to be considered for strategic investment decision with the use of information from a post audit appraisal