Module 6: Critical Thinking Option #1

Date: April 29th, 2021
To: Professor XXXXXXXX
From: XXXXXXXXXXXX
The purpose of project analysis is to select the best projects that are financially feasible as their return should be greater than required rate of return and they cumulatively incur the total investment less than or equal to the proposed budget.
A successful project significantly affects the company in many ways. “A successful project is not only delivering the requested result, it is also providing customer satisfaction and benefits for the company (Jossefson, 2011).” There are several reasons for which company undertakes a project, like increasing the revenue or net income, to enlarge market share, better handling the competition, providing better services to customers, exploring new areas or enhancing firm’s value. However, the core importance of project is to maximize the shareholders’ wealth and fuel the business growth. Project needs huge capital investment followed by cash flows till the life of the project. Therefore, the project appraisal becomes necessary to test the financial feasibility of the project. Otherwise, wrong investment may put the company in financial distress. According to Axelrod (1988), Capital budgeting involves finding the current monetary values of all benefits and costs of projects that will take place in the future. There are several project appraisal methods or capital budgeting techniques to assess the financial feasibility and to determine the extent of profitability of the project (Akalu, 2001). Mainly, such methods or techniques are categorized into Discounting methods and Non-discounting methods (Jackson, 2014). Under discounting methods, Net Present Value (NPV),...