Investment Appraisal (Edexcel A-Level Business): Flashcards
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Practise the cards
10 cards from this deck
Investment definition
Investment definition
Spending money today to generate greater returns in future
Investment appraisal
Investment appraisal
Process to objectively evaluate if investment is profitable
Payback period
Payback period
Time taken for investment to recover its initial cost
ARR formula
ARR formula
(Net profit per annum / Capital cost) × 100
Time value of money principle
Time value of money principle
Money today is worth more than same amount in future
NPV formula
NPV formula
Present values - Initial cost
DCF accounts for
DCF accounts for
Effect of interest rates, NOT inflation
Payback method limitation
Payback method limitation
Ignores cash flows after payback period is reached
ARR method limitation
ARR method limitation
Ignores time value of money
Qualitative factors in investment decisions
Qualitative factors in investment decisions
Human relations, ethics, risk, funding, business confidence