Off shoring Amazon's Customer Service to India offer cheap Financial Plan

Off shoring Amazon's Customer Service to India offer cheap Financial Plan

Introduction

The paper attempts to analyze the given business with the financial investment appraisal techniques. The investment appraisal techniques used in the paper for the purpose of analyzing the business include NPV and IRR.

Discussion

Net Present Value (NPV)

Net Present Value is a financial indicator that measures the flow of future revenue and expenses will have a project to determine if, after deducting the initial investment, we would make a profit. If the result is positive, the project is viable. The Net Present Value also allows us to determine which the most profitable project among several investment options is (Weygandt, Kimmel, Kieso, 2009, pp 100 - 111). The Net Present Value is the net value of a project after discounting all the cash flows to the investment year. The Net Present Value of both the projects is as calculated:

Net Present Value = Present Value of Outflows - Present Value of Inflows

Internal Rate of Return (IRR)

The Internal Rate of Return is the discount rate of an investment project that allows the total cash inflows to be equal to the investment (Net Present Value equal to 0). The Internal Rate of Return is the maximum discounting rate that may have a project to be profitable, since a higher rate would cause the total cash inflows to be less than the investment (Net Present Value less than 0). The higher the internal rate of return, the more profitable the investment is likely to be. However, the internal rate of return alone cannot judge an investment, the utilization of Net Present Value calculations prove helpful in deciding as to what project to be chosen (Ryan, O'Brien, 1990, pp 92 - 99).

Net Present Value (NPV) and Internal Rate of ...