Finance Essay Example | Topics and Well Written Essays - 2000 words - 8

Finance - Essay Example This means they can both be implemented because they add value to the shareholders wealth. However, if only one investment opportunity was to be carried out in a limited period of six years, Penta Ltd should consider investing in retail business because it has a higher net present value of  £ 1,659,000 as compared with that of building a new factory, which has net present value of  £ 1,207,000. The methods used to appraise investment opportunities use either non-discounted values or discounted values. The most appropriate investment appraisal technique for the two investment opportunities anticipated by Penta Ltd is the Discounted Net Present Value method. Discounted Net Present Value method is defined as the summation of all discounted net cash flows that accrue to an investment opportunity in a defined period of time (Brigham and Houston 2009 p. 338). The method considers time value of money received and spent in a given project in a specified period of time. If the net present value is greater than zero (NPV>0), the investment opportunity will be implemented because it adds value to the company. If the net present value is zero (NPV= 0), the investment may or may not be undertaken. Other factors such as competition, socio-cultural and political issues may be considered to enable the manager or project director to invest or not. However, when the net present value is less than zero (NPV