Maritime Finance

period, the Net Present Value of the projects, and from these results better decisions with regard to capital investment result (Gotze, Northcott Schuster, 2007, p.24).Payback period and accounting rate of return are among the many investment appraisal measures that aid in investment decisions (Baddeley, 2012, p.241). The payback period method provides many advantages that range from its simplicity to using and the ease with which employees will understand the method. It is also advantageous in guiding decisions for investment decisions with small investment needs. The disadvantages with this method regard the fact that it ignores the time value for money concept, which is vital in investment appraisal (Woodruff, 2014). The two methods all ignore the time value for money making them less appropriate means of comparing the projects to establish which one will have better yields. The two concepts all apply evaluation based on the assumption of easing the decision for investors in relation to capital budgeting that has proven a need I capital investment needs.On the other hand, the Accounting Rate of Return is advantageous in that it provides a simple approach that applies all accounting information and it is easy to calculate. It is also based on the profit that the company generates that helps in measuring the general profitability of the investment (Akalu, 2003, p.17). The disadvantage of this method is that it ignores the time value for money and ignores the terminal values that the project yields (Accounting management, 2009).The time value for money is an aspect that considers the value of money and the effect that time has on it (Lieuallen, 2008, p.335). It aims at determining the value of money today that will be in the future based on these to make investment decisions and guide capital investment procedures of a company. The time value for money explains how time affects the value of money. Considering a sum of $2000 at present, the value of this figure in the future says after 5 years will be totally different considering an interest rate through which the figure is valued (Mclean, 2002, p.99). These affect investment decisions.

Back To Top