Investment appraisal techniques are a very helpful tool for the business from an investment point of view. Different businesses utilize multiple types of investment appraisal techniques according to their project in which they want to invest and get returns. There are many techniques like payback period, internal rate of return, net present value, accounting rate of return, and profitability. Different organizations use techniques according to their requirements. These techniques help to explain whether the project is profitable or viable for the company or not. Every technique determines the project with a different perspective and provides a different result according to its measurements. (Efinance management, 2020)

It is very important to determine the importance of the project because money is worth the business and no organization want to waste its money on useless projects which never give any return. Investment in different projects expands the quality and flexibility of the production, increases the market share of the organization in the market, and improves the image of the company in the market. These all investment appraisal techniques help the organization to make a better decision about selecting or rejecting the project. (Mygov.scot, 2019)

Payback period pros and cons of Financial Management:

The payback period is the period at which its startup cash investment of the project equal to the net cash inflow of the project. this technique help to calculate the length of period need to get back the initial cash investment in the project and normally used for the initial screen process of the project. According to CIMA, the payback period is the required Period for the inflow of money from the project capital investment and it must be equal to its initial cash outflow in the project. a targeted payback period must be set by the organization because the project is going to be rejected when the payback period is more than the targeted time frame. But sometimes the project not only evaluates based on the payback period. The payback period technique is utilized as the first screening method for the projects. These organizations also use many other techniques to determine the acceptance or rejection of the project. net cash inflow considers by the organization which means net cash inflow as profit after tax plus depreciation to appraise the project for the organization. The formula of the payback period = stratup outlay /net cash inflow. The payback period is commonly used in the organization with other appraisal techniques and provides a better view of the project acceptance and its rejection by the organization. The payback period has many advantages but with this, it also has many disadvantages. All are given as under:

Pros of payback period: there are some benefits of the payback period that include; this concept is easily understood, as compare to other appraisal techniques the calculation process of this technique is a simple and quicker, more reliable technique, shorter-term forecast, through payback method the investment risk also assess, more focus give on payback for increase liquidity and longer payback means that capital is tied up in a project.

Cons of payback period:

With lots of benefits, the payback period also has many disadvantages that include: it influences for additional investment in short term projects, it forget the money and its time value, it forget the produced cash flow after the payback period end and also ignore the total profit of the project and within payback period it ignores the timing cash inflows. (Alamgir, 2019)

Accounting rate of return pros and cons:

Normally the investment appraisal methods consider on the cash flows but one technique is focused on expected net operating income that comes from the project. This technique is known as the accounting rate of return. It pay attention on income obtained from the investment proposal as compared to the cash flow of the investment project for the organization. In this method, the accounting rate of return of the asset is measured by dividing the net income which is expected with the initial investment of the project, and then takes comparison with the required rate of return of the management for agree of not for the project. the proposal is accepted when the expected accounting rate of return is equals or more with the required rate of return otherwise the project is not accepted by the organization. The formula of accounting rate of return = incremental accounting income/stratup investment. (Accounting for management, 2019)Here are some benefits and issues of the accounting rate of return as:

Pros of accounting rate of return: it is helpful to measure the current performance of the organization; owners are more interested in the return of investment so this method gives more satisfaction to owners, for calculating the rate of return this method focus the accounting concepts for measuring the profit, its calculations are very simple to understand as it takes total saving according to the economic life of the project, it also recognizes the net earning concept which is a important factor of the investment proposal, it shows clear profitability picture and this method give benefit to the contrast with new product project with the expenditures reduction project according to the requirement of the organization.

Cons of accounting rate of return: some cons of the accounting rate of return are: this method does not determine the outside factors that affect the profitability of the project, based on accounting rate of return the fair rate of return never judge, this procedure also ignores the time factor for the project, this method not match with the other methods and their results also different, in all situation this method is not applicable, this method is not considered the life period of different investments and many others that create some problems for the decision of organization for selecting the project. (Account learning, 2019)

Net present value pros and cons of Financial Management:

Net present value is another technique to determine the project appraisal in the organization. It also determines the profitability of the project in the organization. It has many specifications and it provides a viable result related to the project and its selection. The major benefit of the net present value is that it keeps balance the worth of money according to the present value which can be used in the future and also determine the benefit of the future. Above the present value of the investment outlay, the net present value measures the present value of the future cash flows. With the capital required for investment today, net present value compares the value of cash flows received in the future. This implies the project meets or exceeds the expected rate of return according to rule of taking decision which is to follow and focus projects with the NPVs equal or more than zero. In capital budgeting and investment NPV show, many advantages and it provides a better path to the organization to determine the more profitable project for the long term. So here are some pros and cons of the net present value techniques and determine how much it is using full for the business and how it show adverse effect in the business decision.

Pros of net present value: NPV is an additive technique, it means that when more than one project is provided and having additional capital than more than one project can be selected for wealth creation from the investable projects and get more benefits. It recognizes the time value of money. It used the cash flow of the business instead of net operating profit. It is calculated straightforwardly. NPV determines the investment size. It also estimates the creation of wealth according to a potential investment in the dollar value of today according to the applied discount rate.

Cons of net present value: there are some cons of the net present value as it is an intuitively difficult concept top understand, it assumes assess and prediction may different from real terms, and it uses the same discount rate for the whole life of the project but it may later according to changing requirement. (Mendell, 2020)

Internal rate of return pros and cons: The internal rate of return is an investment appraisal technique used in organizations. As a percent, the internal rate of return is the return that explains each dollar in the investment. Investors use the term yield while the appraisers use the internal rate of return as a discount rate in organizations. It provides a more clear view of an investment’s profitability than the direct capitalization method, as the cash flow model used to measure the IRR that includes many different elements amendment in cash flow and tax benefits with the impact of leverage. The internal rate of return is working beyond the limitations. Although they are in that investment it does not account for the external factors that can be affected the money value that is taken out of the investment as IRR only measure the dollar in investment. By an investment or capital project, the internal rate of return reflects the compound return produced. In the field of forestry or other capital projects, the IRR is used effectively with the net present value. IRR is considering a relative measure that never considers the wealth creation or investment size.

Pros of IRR: there are many advantages of the IRR like this method give the accurate rate of return of every project when more than one project is provided and compare their cost of investment according to the organization’s requirements. Before the project begins, the internal rate of return allows the investors to get a complete overview of the returns of the projects. IRR also considers the time value of money for every project. IRR is considering more credible and accurate for project assessment.

Cons of IRR: with advantages, IRR also has many disadvantages like it not consider many important factors belong to the project like its duration, size, or its costs. Normally business leaders never prefer to use the IRR because it does not determine all the factors which are necessary for the project and its development and success. (Rauner, 2018)

Conclusion of Financial Management:

in the end, we can conclude that investment appraisal techniques are very helpful for the organization because every organization needs to invest in the projects according to its capacity and to enhance its production and meet its demands. The company has a limited investment that it wants to spend on that project which will provide maximum satisfaction and also provide great revenue in return for investment. The company offered any type of projects but which one is best and beneficial for the long term is very important to know for the company and this company utilizes many investment appraisal techniques to get maximum information related to project performance and determine that investment in the project how much give benefit to the organization according to its requirements. Company has to select or reject the project according to results of these techniques and decision about the selection or rejection should be wisely taken by the management of the organization after determining these methods because a huge investment is involved in the project and if the decision is the wrong organization has to face a major loss.

Task 2:

Introduction of Financial Management:

Money is the basic element of the organization to run its business operations. Without money, no organization can run its activities. When the business is started, the owner has the capital to run its business operations but after some time when the organization needs more money than the owner want to raise the money of organization and for this purpose shares are going to be an issue in the market and enhance the level of capital.

Purpose of issuance of shares of Financial Management:

Issuances of shares are the most important part of the organizations. Normally organizations issue the shares to increase the money belong to investors and investors are all those parties who invest their money in the organizations. Normally investment in different companies happens for its growth and development for the long term and investors invest their money because they want to use their money for some productive purpose and they also want to earn income in the form of interest. The stock exchange is one of the biggest platforms to issue shares and the company also gets register as the legal entity that runs its business operations and provides shares to the public to increase their capital. When the shares purchase by some investors then it becomes the shareholder of the company and shareholder has complete right to take part in the equity and decision of the company according to its portion of shares and also taking share in the profit of the company as a dividend which was given by company more than their interest income and shareholders also have right to generate vote in the annual general meetings of the company according to their share. (Jamapunji, 2019)

There are also many purposes related to the shares of the company. not all the companies issue shares but those companies who want expansion must issue shares to the general public at the right time and send invitations. The most important purpose of the issue of shares is to avoid debts. Some businesses want to rely on equity and they never prefer to take debts for any kind f business activity because they consider debt is a burden on the business and its profitability so in this regard company move to the issuance of shares option and allow people to take part in the ownership with their investment and take part in the activities and profit according to their portion of shares. Another reason for the issuance of shares is to expand the business operations and raise the level of working of the organization effectively. When the company wants to follow this strategy then it required more capital and for this sake, the company issues the shares to the general public and raises its capital for further expansion. Company issue shares for improving the ability to borrow from the market. Shares make the reputation of the company more reliable in the market and also develop the trust of people on the company and its operations. Issuance of shares also helps the company to register in the stock exchange and consider in the list of biggest organizations whose operations and activities rely on the shares and its dealing happen on a large scale. (Hartman, 2017)

4 type of shares and the difference between them of Financial Management:

There are many different types of shares issued by the companies according to their need and requirements. A limited company has more option to attract shareholders according to their investment money and company offer many opportunities and facilities to its all shareholders. Ownership, conditions, and rights of the shareholders can be specified according to different types of shares that issue by the company and manage them most effectively. According to their criteria, these are 4 different types of shares used by the companies in the stock market which include: preferred shares, ordinary shares, non-voting shares, and redeemable shares.

Preference shares are related to shares in which the shareholders received a specific amount in the form of dividends every year without any change. These shares also received by all those shareholders that also have ordinary shares in the same company. Preference shares consider the percentage of nominal value in the value of shares. These shares provide shareholders a preferential right for taking the dividend. In case of insolvency, a preferred shareholder has more right to claim about the assets of the company with higher priority. Preferred shareholders have no rig to take part in the voting like the ordinary shareholders of the company. Redeemable preferred shares also a way to finance the company and purchase the same shares for increasing investment. (Upcounse, 2020)

Ordinary shares are the basic type of shares that issue by the company. Ordinary share means one share carries one vote and according to their ownership that also takes part in the dividend of the company. In the case of closing the company, all the allocations of profit occur according to the portion of shares. According to the right of capital, ordinary shares come after the preferred share but the voting right makes the ordinary share more attractive and powerful. Ordinary shares are the basic right of shares to take part in the management and decision of the company and share the ownership equity of the company. They also take part in the distribution of assets of the company at the time of sale of the company or wound up . so ordinary shares having large worth in the company and also in the market according to its shares in the company. (Disnat, 2019)

Redeemable shares of the company issue when the company at the future date buys back its shares. These shares set by the director of the company or sometimes fixed . these shares normally used for nonvoting shares at the time when they are leaving. So these shares are back to the company at their nominal price. The redemption price of shares is also equal to its issue price. These shares issued to employees so they can get back when the employees are leaving the company. Redeem shares having specific statutory requirements and have limited ability. (Wellers, 2020)

Non-voting shares are also ordinary shares but the difference is that they have no right to take part in the voting in the general meeting of the company. These shares normally issue to the employee of the company so dividends can be paid as remuneration of the employees to avoid additional tax for the company. These shareholders also retain the control of the company and manage different decisions of the company to expect their voting power. So these types of shares normally issue to all those who are family of the company or employee of the company so they never affect the performances of the company and also having no issue when they have no voting right received. (Rocket lawyer, 2020)

Conclusion of Financial Management:

In the end, we can conclude that the issuance of shares is very important for the company for its better growth and development. But it depends on the organization and its management that what kind of shares they want to issue for their shareholders and how to make with them strong relationships according to changing conditions and requirements of the company and provide them interest and dividend according to their shares in the company.

Reference of Financial Management:

Account learning. (2019). Accounting Rate of Return (ARR) Method | Advantages | Disadvantages. Retrieved from https://accountlearning.com/accounting-rate-of-return- method-advantages-disadvantages/

Accounting for management. (2019). Accounting rate of return method. Retrieved from https://www.accountingformanagement.org/accounting-rate-of-return-method/

Alamgir, M. (2019, january 2). What Is Payback Period? (With Advantages & Disadvantages). Retrieved from https://accountantskills.com/what-is-payback-period-what-are-the- advantages-and-disadvantages-of-payback-period/

Disnat. (2019). Different Types of Stocks. Retrieved from https://www.disnat.com/en/learning/trading-basics/stock-basics/different-types-of-stocks

Efinance management. (2020). Investment Appraisal Techniques. Retrieved from https://efinancemanagement.com/investment-decisions/investment-appraisal- techniques#:~:text=Investment%20Appraisal%20Techniques,performance%20of%20a% 20new%20project.

Hartman, D. (2017, April 19). What Is the Purpose of a Company Issuing Stocks? Retrieved from https://pocketsense.com/purpose-company-issuing-stocks-4707.html

Jamapunji. (2019). WHY DO COMPANIES ISSUE SHARES? Retrieved from https://jamapunji.pk/knowledge-center/why-do-companies-issue- shares#:~:text=Companies%20issue%20shares%20to%20raise,tend%20to%20invest%20 their%20money.&text=These%20allow%20the%20shareholders%20a,at%20general%20 meetings%20of%20shareholders.

Mendell, B. (2020, May 31). Pros and Cons of Using Net Present Value (NPV). Retrieved from https://forisk.com/blog/2020/05/31/pros-and-cons-of-using-net-present-value-npv/

Mygov.scot. (2019, November 5). Working out what your business should spend money on. Retrieved from https://www.mygov.scot/investment-appraisal/

Rauner, R. (2018, October 26). Pros and Cons of Using IRR to Measure Investment Performance. Retrieved from https://ryanrauner.blog/2018/10/26/pros-and-cons-of-using-irr-to- measure-investment-performance/

Rocket lawyer. (2020). Types of shares. Retrieved from https://www.rocketlawyer.com/gb/en/quick-guides/types-of-shares

Upcounse. (2020). Define Shares and Its Types: Everything You Need to Know. Retrieved from https://www.upcounsel.com/define-shares-and-its-types

Wellers. (2020). How to understand the different types of shares & class of shares. Retrieved from https://www.wellersaccountants.co.uk/blog/how-to-understand-the-different-types- of-shares-class-of-shares