Internal Rate Of Return Analysis Essay Example

to decide whether the project will be accepted or not, the condition is that NPV should above 0. Otherwise the investment should be rejected. In the same situation, it is better to use the project which NPV is higher than others. However if we use IRR approach, the rate should be higher than what the company requires. Eddie McLaney (2006) mentioned that IRR cannot deal with different required rates of return which Pike, R & Neale, B (2006) have pointed out in four areas: mutually exclusive projects, percentage returns, the unconventional cash flows, and reinvestment assumptions. And the project should be independent otherwise IRR may fail.

Capital Allowances

Some businessperson complained about business tax, but there are some ways to encourage their investment. As a business you can claim tax allowances, called capital allowances. Eddie McLaney (2006) explained that capital allowances are when a company makes investments in plant or machinery they can often claim an allowance on their tax change for the period. Companies can use capital allowances on their plant, machinery, certain building works, and research and development.

It is obviously to know that capital allowances can help a company to reduce taxation. And the rate, when and how to calculate, and the amount of a company’s capital allowances depend on what they are claiming for. However there are different rules should be obeyed within different types of capital allowances.

References

http://www.bytestart.co.uk/content/taxlegal/9_6/capital-allowances.shtml