Investment Appraisal
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What is investment appraisal?
What is the payback period and how is it calculated?
State the benefits and drawbacks of the payback period as a method of investment appraisal.
What is the average rate of return and how is it calculated?
What are the advantages of the ARR and NPV over the
What are the advantages of the ARR and NPV over the payback period as methods of investment appraisal?
Distinguish between quantitative and qualitative investment appraisal.
Pay Back Period
The payback period (PBP) refers to the amount of time needed for an investment project to earn enough profit to re pay the initial cost of the investment.
Average Rate of Return [ARR]
The average rate of return(ARR) calculates the average profit on an investment project as a percentage of the amount invested.
Expressed as a percentage, the ARR enables managers to compare the return on other investment projects.
Investment Opportunity, Net Present Value [NPV] | HL
The net present value (NPV) is the sum of all discounted cash flows minus the cost of a particular investment project.
Note: When appraising an investment, you may consider several methods of appraisal as well as compare between different investment projects and opportunities.