3.8 INVESTMENT APPRAISAL

Question 1

PAYBACK PERIOD = INITIAL INVESTMENT COST/YEARLY CASH FLOW

RECALL PPP TABLE STRUCURE

Question 2

PRO AND CON OF PPP

Answer 2

PRO: TIME-FOCUSED WHICH IS GOOD FOR BIZ W/ LIQUIDITY ISSUES

CON: FOCUS IS ON TIME INSTEAD OF RETURN

Question 3

AVERAGE RATE OF RETURN = ANNUAL NET PROFIT/INITIAL INVESTMENT

CAN GET ANNUAL NET PROFIT FROM “FINAL” NET CASH FLOW/# OF YEARS

Question 4

DECISION TREES
- PROBABILITY x OUTPUT = EXPECTED VALUE (can be used to calc ARR)

SUM OF EXPECTED VALUES = EXPECTED RETURN

KEY DETAILS: DECISION NODE/CHANCE NODE/UNWANTED DECISION STRIKES