Investment Appraisal. Flashcards
(7 cards)
1
Q
What is Investment appraisal?
A
Technique used to evaluate planned investment by a business and measure its potential value.
2
Q
What are the 3 ways to compare projects in Investment Appraisal?
A
Payback Period
Average Rate Of Return
Discounted Cash Flow
3
Q
A
4
Q
What is Payback Period?
A
The time it takes for the project to pay back its initial outlay.
5
Q
What is the Calculation of Payback Period?
A
Month of Payback = Income needed in period ÷ Contribution per month
6
Q
Advantages of Payback Period?
A
Easy to calculate and simple to use.
Helps with managing cash flow
Considers timing of cash flow.
7
Q
Disadvantages of Payback period?
A
Ignores what happens after the payback period
May encourage short term attitude.
Ignores total profitability.
