3.5 4 return on investment objectives

Question 1

Factors determining investment levels

Answer 1

• Management attitude to risk (how open are they to investment) Google a company which are open to risk
• Market conditions (what is going on in the economy - will customers be likely to spend alot)]
• Competitors actions ( may feel forced to invest in new equipment so that competitors dont gain an edge)
• Levels of retained profit
• interest rates / availability of finance (how much money businesses have to invest
• Expected rate of return on investment (how quick may it take for investment to be paid back)

Question 2

What is investment appraisal

Answer 2

is a process that mangers use to compare the cost of an investment to the expected revenues it will accure (receive)

Question 3

calculation for return on investment

Answer 3

return on investment = (revenue - cost of investment) / total cost of investment x 100

Question 4

calculate ROI if :
ER = £60000
Cost of investment = £50,000
ROI = £10000

Answer 4

10000/50000 X 100 = 20%