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Dissertation Proposal
How can IRR help to determine the risk of choosing between two investments? The payback time
[Date]
Dissertation Proposal
Title
How can IRR help to determine the risk of choosing between two investments? The
payback time period is also known as the problem solver in decision making. Evaluate
The entire project would be based on the financial measures taken by organisations when
they are planning to invest in different projects. Different capital budgeting instruments and
methods will be used in this research. However, emphasis would be laid on core financial
instruments which are known as internal rate or return and the pay back method. Similarly, the
core aspect that would be discussed in this research is that how these methods are used by
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Background
Organisations are enlarging their visions and with the advent of time they have
transformed themselves into big powerhouses that possess immense power to influence different
stakeholders that are present in a society. These organisations invest their reserves in different
ventures to earn more and more profit so that they can be successful in both the short and the
long run (Siegel 2007). Investments are actually associated with the scenario that they are a
commitment of money to purchase financial instruments through which profit can be attained.
Usually companies invest in different ventures like property, commodity, stocks, bonds
derivatives etc. However, it can be said that the purpose of these financial instruments is to earn
profit and maximise the financial strength of the company (Mayo 2006). Furthermore,
investments are associated and treated as financial elements that are dealt by financial analysts
and accounts so that they can be utilized in the best possible way. However, a broader of
investments depicts that certain element of risk is always associated with investments and
financial analysts opt for different methods so that they can curb the risk of financial investment
Literature Analysis
Dissertation Proposal 3
Investments appraisals or capital budgeting methods are important aspects when it comes
to minimizing the risks associated with the investments. The core aspect that is discussed in
capital budgeting is of project selection and how organisations select an investment project when
they have several options (Seitz and Ellison 2004). The main aspects of investment appraisals are
Internal rate of return (IRR) methods calculates the discount rate at which an investment present
value of all the expected cash flows equals the present value of its cash flows that are expected.
In simple terms it can also be said that IRR can be calculated when the Net Present Value of an
investment option is actually zero. It is also known as the amount of profit an individual gets
when they invest in a certain project (Peterson and Fabozzi 2002). However, IRR is calculated in
percentages but in order to evaluate the risks factor in an investment it can be considered as one
of the most feasible options. Besides that it can be said that another method that is equally
important in this regard is that after how much time an individual or an organisation would get
back its investment. Through number of years an individual or an organisation can easily
calculate the element of risks involved in an investment (Dayanada, Irons, and Harrison 2008).
Therefore, it can be said both these methods are quite important in gauging the risks that is
Objectives
The objectives of the current research will to evaluate that what are the risks associated
with investments and how IRR and other capital budgeting methods like Pay Back approach
minimizes that risks. The objective of the research is a bit narrowed as it would focus on a
scenario that how an organisation picks up a project when they have to choose between two. The
research would look for empirical evidences and analysis of different organisations will be
Dissertation Proposal 4
Research Methods
hypothesis. The approach that will be used in this research would be based on deducting
reasoning. Two broad methodologies of research will be used in this research project which is
known as qualitative and quantitative approach. However, emphasis will be laid on quantitative
approach. However, case study approach will also be used in this research project. . . . . . . . . . . . .
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The data that will be analysed in this research would be collected from both primary and
secondary sources. The primary data analysis would focus on questionnaires and analysis of
these questionnaires will be used in this research. However, secondary sources would incorporate
case studies of different organisations that are using these techniques to evaluate the risks of their
investments.
Schedule
References
Dayanada, D., Irons, R., & Harrison, S. (2008). Capital Budgeting: Financial Appraisal of
Melicher, R., & Norton, E. (2008). Introduction to Finance: Markets, Investments, and
Seitz, N., & Ellison, M. (2004). Capital Budgeting and Long-Term Financing Decisions . South-
Siegel, J. (2007). The Definitive Guide to Financial Market Returns & Long Term Investment
Dissertation Proposal 6
Strategies. McGraw-Hill.