Evaluated on the Basis of Financial Criteria

Questions: 1. Context Line : One to two sentences that should provide a clear and concise statement of the issues and consequences (i.e. why the reader should read the memo).2. Action Line : One to three sentences that is like a conclusion but should provide An excellent clear concise statement of how to resolve the issues (i.e. what do you, as the crafter/s of the Memo want the reader to do). Memo 1 Mr. de Ville, the owner of Tasman Ian de Ville Holdings Ltd. (TIDH) has asked you to evaluate five investment projects. TIDH has a $10,000,000 investment budget, an investment hurdle rate of 11.0 %, and the owner has a requirement that all investments have a Payback Period (PBP) of under 3.5 years. Also, Project 2 brings the offices and warehouse up to the current fire code and the listed savings are the facilitation payments that will no longer need to be made to inspectors to avoid the office being shut-down. Year end Project 1 Project 2 Project 3 Project 4 Project 5 01 -$830,000 -$200,000 -$850,000 -$5,000,000 -$350,000 02 100,000 350,000 800,000 350,000 03 100,000 500,000 800,000 350,000 04 100,000 700,000 800,000 350,000 05 800,000 -2,650,000 06-30 1,000,000 800,000 350,000 Answers: 1. Context Line The investments should be evaluated on the basis of financial criteria and the projects with better NPV scope should be considered for the purpose of investment. (Self, 2012) 2. Action Line The decision of positive flow to the investors is being selected after the following is done. The project should be evaluated on the basis of various factors such as payback period of the project, present value of the project, profitability index etc. Project payback is same so the decision is based on NPV.(Punder, 2009) The fourth project would be accepted because of the consistency in the savings from the project and hence the amount of inflows that arise from the project is huge. The company should make sure that the project is approved based on the net value of the projects as it could be seen that the inflow of $800000 is the best option from the point of view of the company as a whole. The non financial factors can only be considered in the case if there are some continuous revenue generating factors from the project.(Zine.com, 2007) The project evaluation criteria would vary from the ways used to evaluate based on the scenario of the positive present value projects. The company focuses on the benefit that derives after investing whereas company is having a cost of capital of 11% the project needs to give some profits that is only possible in the case of project 4 for Mr. De Ville. (Flings, 2012) Bibliography Flings, B. (2012). Before you agree to a major project, a proper financial analysis is a must. Find out which analyses offer the most insight for your situation. Biz Flings , 1-1. Fraser, S. (2013). The risk-based audit approach. CA Australia adnd NZ , 1. Perry, L. (2014). Auditing Special Purpose Frameworks: Risk Assessment. Accounting WEB , 1. Punder, I. (2009). Use of Discounted Cash Flow Methods for Evaluation of Engineering Projects . INCTECH , 1-17. Self, C. (2012). Reasons For Using Cash Flow in Capital Budgeting. Chron , 1-1. Zack, M. (2013). Audit and Risk. article , 1. Zine.com, M. (2007). Evaluating Cash Flow Results. MoneyZine , 1-1.