Question 4 4.1 The fundamentals of finance are said to be the concept of "Risk and Return" and secondly the Time Value of Money. Critically evaluate how investment appraisal techniques can take account of both fundamental theories to aid decision making (10 marks) 4.2 Summarise the benefits of Leasing to the company when obtaining new fixed assets

Answer to Q4 Introduction: In this question, we have to evaluate how the concepts of time value of money and "Risk and Return" aid in decision making involved in investment appraisal. Also, we have to summarise the benefits of leasing to the company when obtaining a new fixed asset. Answer 4.1 The two most important fundamental concepts in decision making are time value of money and risk and return. Without the time value of money, we cannot evaluate projects using the net present value or IRR method. Simply, the value of money today and the value of money one year later are not the same. If we ignore this, our investment appraisal will not be up to the mark. Risk and return is also one of the most important concepts. Generally, the return on any project is based on the risk involved in that project. If the risk of the project is greater, the expected return of that project will also be greater. Without the measurement of the risk, we cannot estimate the required return, and without that return, we cannot calculate the net present value of the project. As a result, time value of money and risk and return concepts that aid in decision-making in investment appraisal methods. Answer 4.2 Benefits of Leasing: There is low interest rate The formalities and arrangement is quite simple It reduces the finance risk of the lessee. It plays and important role in additional finance. It saves huge capital expenditures. Transaction or flotation cost is very less compared to debt finance.