Q.2 Fred Waqaz is the owner and manager of Zasax Limited. He is seeking ways of expanding his business and has identified a number of potential investments that he suspects might help him achieve his goals. The projects are of varying sizes and require initial investments from as little as $100,000 to as much as $1,000,000. Although Fred understands accounting and can identify the relevant cash flows in each project, he has had no training in financial management. He has approached you to help him to understand how a business should appraise, and choose from, investment projects.
For Fred’s benefit, explain the decision rules of the four main methods of investment appraisal.