Project Appraisal & Finance Essay Example | Topics and Well Written Essays - 4500 words

Project Appraisal & Finance - Essay ExampleWe have to clarify the both sets of key questions we are dealing with. The first answers the questions what investings are and why they are important for a business, whilst the bet on answers the question of how investments decisions are made.The second part of our paper elaborates and expands on some of the key concepts that we cover in the first part. In the process, we hope to acquire a deeper understanding of the principles, methods, and issues that have to be calculateed in investment decision-making.This paper will closely simulate the complex world of top management decision-making faced by any business on a daily basis, and where no single discipline - finance, production, corporate loving responsibility, or general management - dominates. As we look at all the conceivable angles that any bothday business looks at prior to the making of an investment decision, we can realise that just like in the real world, we need to make ch oices.Hopefully, our discussion will show that management decision-making is a complex task, that every decision made today can have far-reaching consequences, and that any professional manager who wants to be a worthy practitioner of the art and science of management must take his or her educational preparation, and ultimately his or her responsibility as a manager very, very seriously.The alphabet Mining plc CaseFor purposes of clarity in our understanding of the assumptions used in our discussions and the consequent calculations to arrive at our decisions, we summarise the key facts of the case.ABC Mining plc is investigating the possibility of purchasing an open-cast coal mine at a cost of 2.5 billion which the government is selling as part of its privatisation programme. It would invest in and operate the mine for four years, after which it would clean it up and sell the assets. The Finance head upor prepared the redacted profit and loss accounts shown in Table 1, and in his report to the Board of Directors recommended that the company should not proceed as the profitability of the end is poor.The following are the questions that need to be answeredFirst, what could be considered as the most appropriate investment assessment methods which would help the company to decide whether or not to proceed with the projectSecond, explain why we consider the investment appraisal methods just discussed to be the most appropriate for evaluating investment projects.Third, we would discuss briefly whether the project should go ahead.Table 1 ABC Mining plc Profit and Loss Statement (in millions)Year 0Year 1Year 2Year 3Year 4Year 5CommentsInvestmentsPurchase(2.5)Paid to governmentEquipment(12.5)Financed 10m debt at 12%Sale of Equipment2.5Year 5 sale of vehicles/eqpt working capital(0.5)One-time investmentSunk costs(0.2)Included in Year 1 write-off brush up costs(0.4)Counted in Year 1Clean-up(0.4)Net vehicle sales2.1 Sales9.4 9.8 8.5 6.3 Less Direct ExpWages(2.3)(2 .5)(2.6)(1.8)Incl.