Investment appraisal tools and decision making

All of investment opportunities will bring the greatest return for shareholders. If managers try to invest a project which is uncertainly to managers making a decision, they have to find a reliable way to reduce the investment risk. There are five investment appraisal tools introduced by this week lecture which are Payback, Accounting Rate of Return (ARR), Discounted Payback, Net Present Value (NPV) and Internal Rate Return (IRR). NPV and IRR which concern the time value of money are much reliable tools compared with others. Furthermore, NPV is better than IRR to maximise shareholder's wealth, because the result is presented completely amount of money through the measure of NPV. However, IRR shows as a percentage returns which could lead wrong project to be rejected.

Sensitivity analysis will give a further analysis which is explaining and illustrating the NPV in the uncertain condition. It supplies formed information for decision makers, and helping them judgment error and preparing to face the risks. In contrast, sensitivity analysis can monitor parameters, but those are wildly limited in a real world. In addition, one of parameter changed lonely while other factors remain stable in the sensitivity analysis. It cannot happen in the real world, in fact, all of these factors are relative closely together, if one of them changed, it should be affected others in the real world.

In the latest news shows Nokia will reload Symbian operating system. It launched the C7 based on Symbian system in Octobor which created more than five million last year (Wall Street, 20110). Symbian was the largest smartphone platform globally before last year. It was passed by Google Inc. operating system last fourth quarter which led to Nokia loose a third smartphone market. So Nokia announced they will invest Windows operating system instead of Symbian's system on February this year. They estimate they could increase the smartphone market share while uses Windows system. In order to let their customers accept the transition process from Symbian system to new system, they will keep Symbian until next year.

A lot of elements affect the choose of the right project by managers. One factor changing will be obtained the wrong project. It pushes managers who have to monitor the process and variety of intangible factors during their decision making.