Investment appraisal process of Pearson Plc -

Investment appraisal process of Pearson Plc

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Financial Management Assignment Question

1. Why is the investment appraisal process so important?
2. The concept of relevance applicable to the determination of the project’s cashflows stating all assumptions made.
3. What are the criticisms of the methods used in the investment appraisal process?
4. A critical review of the logic behind the decision making process.

Financial Management Assignment Solution

This report provides a discussion on investment appraisal process for a project started by Pearson Plc, a giant in the publication industry. The project details are framed to show the investment appraisal estimations. Several assumptions are assumed herewith to explain the decision rule. We use and calculate the NPV of the project to make decision and found that project investment decision is acceptable given the details of cash flows, revenue and expenses of the project. Further, a summary discussion on various theoretical and empirical researches is present to broaden the understanding of readers on investment appraisal process. The process is divided in three main parts – cash flow identification and estimation; calculation of the cost of capital; and applying investment decision rule. 
The role of assumptions in explaining the investment appraisal process is very important and justification needs to be given when present. In the case presented here three important assumptions about the tax rate (35 percent), the present value factors (18 percent) and the project’s riskiness equivalent to Pearson Plc are taken. It is also important to note that under what situations the assumptions need to be relaxed and the changes made in analysis. Finally, this report summarizes that the investment project is acceptable given several risk situations and cash flow estimations are made correctly.

To provide advisory and consulting for a firm’s new project investment, a firm from publication industry is taken as a sample. To explain the investment appraisal process, a company named Pearson Plc in the publication industry is taken and downloads the financial results of past five years i.e. from 2011 to 2015. A suitable valuation method is adopted and the valuation of project is carried forward in detail as follows. Here, a fictitious project details are given to clarify the project investment appraisal process. We consider the financial details of Pearson from Thomson Eikon database and evaluate the project as detail below. Further this report covers the following: 

  • Section 1 provides a detail discussion on investment appraisal process;
  • Section 2 details about the project investment by Pearson Plc;
  • Section 3 provides a summary of empirical and theoretical research;
  • Section 4 critically analyzes the NPV of the project;
  • Section 5 describes the logic behind the process; and section 6 concludes………………….

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