34 - Which method would you use to evaluate an investment...

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Which method would you use to evaluate an investment project that involved modernizing a firm's existing plant? The project will not affect the firm's target debt-to-equity ratio. Investment Appraisal also known as Capital Budgeting is used to asses whether capital expenditure on a particular project will be beneficial for the entity or not. A good financial analyst should recognize that superior capital budgeting ability is reflected through a sound procedure that evaluates, compares and selects between two or more alternatives of an investment / capital expenditure that delivers satisfactory cash flows and rates of return. There are two primary capital budgeting metrics that have been traditionally used for this process: the net present value (NPV) and the internal rate of return (IRR) . The NPV method calculates the present values for all future cash flows. The NPV method should be used to evaluate an investment project that involved modernizing a firm’s existing plant. When the firm targeted to maintain or to make constant or
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