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Management Accounting and Control Test Solution

The decision is remain the same as (b) which is buying because cost of saving ARM, Question 2 a) The first alternative methods of investment appraisal that Degas Sad Bad can use to evaluate the proposed implementation of the new material inspection system is is Discounted Cash Flow (DOC). This is the most realistic of the three methods, but has he main advantage that it takes account of the fact that returns in the future may be worth less than the return now.

Therefore future returns need to be discounted to see what they would be worth now. As a result of this it may gives us far less amount of return than the other methods are projecting. The second alternative method is Payback Period. The payback period is the simplest tools for appraising different investment projects. To be able to compare projects we need and to have information n how much the project costs and the expected net cash flows or income streams that it is likely to generate over its lifetime.

The faster we get the payback, it’s the better. The third alternative method is the Average Rate of Return which like the payback period method, its look at the

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expected net cash flows (income – expenses) of the investment project. It then measures the average net return each year as a percentage of the initial cost of the investment.

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