Evaluate the proposals using the appropriate capital budgeting techniques. Critically discuss the results and the pros and cons of the applied methodologies.

Prints company, a commercial printer that produces promotional material in medium size is an ideal choice.

Two of the most common capital budgeting methods used for evaluating proposals are net present value (NPV), and internal rate (IRR). The NPV compares the benefits and costs of a project to establish if it is profitable. This is done by looking at each cash flow and reducing them to the present value with a specified discount rate. These discounted amounts can be compared to the cost of the entire project. This will allow one to determine the benefit that they will get. IRR measures how well a proposed investment meets an organization’s desired minimum return on investment (ROI), by calculating the maximum rate at which cash flows break even when taking into account all relevant costs such as taxes, inflation, etc. IRR considers all factors in measuring ROI and is therefore more reliable than simple payback analyses.

The information available will influence the pros and disadvantages of each option. NPV allows for a more comprehensive analysis because it includes future cash flows as well as their risks. But, these complex calculations can be confusing or difficult to interpret. Moreover, NPV may become inaccurate if interest rates and other variables change during the evaluation. IRR can be simpler because it is solely focused on ROI, rather than future cash flows. But its accuracy depends heavily on future returns assumptions which may lead to incorrect results. Like NPV, IRR evaluations might need to be reevaluated regularly if external factors like interest rates and inflation rate changes affect investment returns. Each method provides useful data points and should be combined to inform decisions regarding potential investments.

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