3. MERITS:-
1. BEST WHEN PROJECT HAVE
SHORTER PERIOD & LESS COST
2. EASY TO OPERATTE & SIMPLE TO
UNDERSTAND
3. HELPS TO ENTERPRENEUR TO
INVEST IN QUICK RETURN FUNDS
PAY BACK PERIOD
4. DEMERITS:-
1. MORE ON LIQUUIDITY THEN
PROFITABILITY
2. NOT COVER THE EARNING BEYOND
PAY BACK PERIOD
3. SUITABLE FOR SMALL PROJECT
4. IGNORES COST OF CAPITAL
PAY BACK PERIOD
6. MERITS:-
1. SIMPLE TO CALCULATE & EASY TO
UNDERSTAND
2. CONSIDER EARNING OF FULL LIFE
3. HELPS TO COMPARING WITH
OTHER PROJECTS
4. CONSIDER NET EARNINGS AFTER
DEPRECIATION & TAXES
AVERAGE RATE OF
RETURNS (ARR)
7. DEMERITS:-
1. IGNORES TIME VALUE OF MONEY
2. MORE FOCUS ON PROFIT & LOSS
3. NOT CONSIDER RE-INVESTMENT OF
PROFIT OVER YEARS
4. NOT COMPARE BETWEEN SIZE OF
INVESTMENT
AVERAGE RATE OF
RETURNS (ARR)
8. CONSIDER TIME VALUE OF MONEY
IT COMPARE RUPEE VALUE OF TODAY & AFTER A YEAR
CALCULATE BY PRESENT VALUE
FORMULA:-
WHERE, S= CASH FLOW
N= NO. OF YEARS
R= INTEREST RATE
NET PRESENT VALUE
9. NET PRESENT VALUE
MERITS:-
1. CONSIDER TIME VALUE OF MONEY
2. SCIENTIFIC METHOD
3. COVERS WHOLE PROJECT
4. FUTURE FLOW IN TODAYS VALUE
5. OBJECTIVE OF MAXIMUM
PROFITABILITY
10. NET PRESENT VALUE
DEMERITS:-
1. DIFFICULT TO CALCULATE
2. BIASED TOWARDS SHORT RUN
PROJECTS
3. NOT CONSIDER NON-FINANCIAL
ACTIVITY LIKE MARKETABILITY
14. USE TIME VALUE OF MONEY
NPV REDUCE TO ZERO
INTERNAL RATE OF
RETURNS (IRR)
15. INTERNAL RATE OF
RETURNS (IRR)
MERITS:-
1. RECOGNISED TIME VALUE OF
MONEY
2. CONSIDER CASH FLOW FOR WHOLE
LIFE
3. TAKES INTO ACCOUNT TRUE VALUE
OF MONEY
4. OBJECTIVE OF MAXIMISING OWNER’S
WELFARE
16. INTERNAL RATE OF
RETURNS (IRR)
DEMERITS:-
1. DIFFICULT TO UNDERSTAND & USE
2. DECISION MAKING IS DEPENDS ON
THE FUTURE FINANCIAL PROJECTION
3. IT ASSUMES THAT RE-INVESTMENT
RATE OF CASH FLOW IS AT IIR
17. conclusion
Project appraisal is necessary for knowing
project is viable or not?
It is vary useful for entrepreneur.
Various methods to calculate project is viable or
not entrepreneur use the suitable one.