Project Investment Appraisal

JK Products, Inc. is in a tradeoff between 2 projects. The projects are - Project Status Quo (SQ), and Project High Tech (HT). The company can choose only one of the 2 projects in order to enhance its production capabilities. Both projects are equally risky. Therefore, a detailed investment appraisal is necessary to find out which project would be more profitable for JK Products, Inc. as a result, this paper will make use of different investment analysis techniques to find out the optimum project for the company. Comparison of the Projects In order to compare both projects, we will calculate their Accounting Rate of Return, Payback Period, Profitability Index, Internal Rate of Return, and Net Present Value. In addition to that, we will also show the NPV Profile of both projects. The summary of our calculations are shown in the sections below. All the formulas and calculations are provided in Appendices. Accounting Rate of Return (ARR) According to Helbæk, Lindest and McLellan (2010), ARR is the return or profit a company or an investor can anticipate from an investment. Elmendorf (2011) said that ARR calculates the expected rate of return by dividing the average accounting profit by the investment made at the starting point of the project. It should be noted here that ARR ignores the ‘time value of money’ as well (Easton and Monahan, 2016). The ARR’s of both projects are shown below- SQ (ARR) = 25.62 % HT (ARR) = 29.26 % Here, we can see that project HT has a higher ARR compared to project SQ. Payback Period (PP) PP is the time or period an investment requires for recovering its initial investment (Investopedia, 2016). Just like ARR, PP also ignores time value of