Assessing Investment Opportunities (AQA A-Level Business): Flashcards
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Practise the cards
10 cards from this deck
Investment appraisal
Investment appraisal
Systematic process to evaluate projects & allocate money
3 main investment appraisal methods
3 main investment appraisal methods
ARR, Payback period, NPV
ARR formula
ARR formula
(Average Net Return ÷ Investment) × 100
ARR's most significant weakness
ARR's most significant weakness
Ignores time value of money
Payback period
Payback period
Time taken to recover initial investment
Why payback good for high-tech projects
Why payback good for high-tech projects
Technology can become obsolete quickly
Time value of money
Time value of money
Money today worth more than same amount in future
3 reasons why money today worth more
3 reasons why money today worth more
Risk, inflation, opportunity cost
What NPV represents
What NPV represents
Total value when future cash flows converted to present value
NPV decision rule
NPV decision rule
Positive NPV = proceed, negative NPV = reject