Capital Asset Management and techniques of its evaluation Essay

Capital Asset Management and techniques of its evaluation - Essay ExampleAlthough the calculation is easy to understand and simple, it still has its limitations. It ignores the benefits, or the lack of, that occur afterwards the payback period and more importantly, the method ignores the time rank of money.On the contrary The Net Present apprize is an indicator of how much value an enthronement or project adds to the firm. The Net Present Value is a more reliable method of calculating the returns expected from investment fundss as the method considers the time value of money. The Net Present Value compares the value of a dollar today to the value of that same dollar in the future, taking both inflation and returns into account. The technique uses discounted cash flow approach in assessing the performance of an investment.A positive Net Present Value generated from a prospective project is a faithful sign and should be accepted On the contrary, a negative Net Present Value resul ting from projects should be rejected because the cash flows will excessively be negative. As such, this technique seems more reasonable in determining the returns of investments.The Internal order of knuckle under is the discount rate that delivers a Net Present Value of zero for a series of future cash flows. As with the Net Present Value, this technique uses the discounted cash flow approach and is as widely utilise as the Net Present Value method. ... It shows the discount rate below, which an investment results in a positive Net Present Value and above which an investment results in a negative Net Present Value. Its the break-even discount rate, the rate at which the value of cash outflows equals the value of cash inflows. Moreover, the Internal Rate of lapse can be found without having to estimate the cost of capital.Modified Internal Rate of pay is a similar concept to the conventional Internal Rate of Return. However, it is easier to calculate and does not produce mult iple results, from irregular cash flows expected from a project, as compared with the latter. Of course the drawback of using Modified Internal Rate of Return is that it does not expect the generation of cash flows from its projects as predicted and its Net Present Value seems overstated. This is contrary to the use of Internal Rate of Return technique, since it assumes that cash flows generated from a project are reinvested within the project at the same rates of return, although they are often reinvested elsewhere within the business. The Modified Internal Rate of Return can be calculated with the use of spreadsheet package or the use of a conventional calculator. Both methods give the same results, however, the latter is more thudding and is used mainly for academic purposes. This technique uses the Present Value of investments, followed by the compounded terminal cash flow of the return phase. This is possible for more interlocking investments, with investment phase that stret ches over several periods.The results generated by this technique are lower than the conventional Internal Rate of Return method but also presents a more realistic approach in assessing projects. Moreover, the technique uses the