3.3.2 - Investment Appraisal

Question 1

What is Investment Appraisal

Answer 1

Investment appraisal attempts to determine the value of capital expenditure projects. It enables the business and its investors to compare projects so that the business can expand and meet their objectives – usually profit maximisation and efficiency

Question 2

INVESTMENT APPRAISAL TECHNIQUES

Answer 2

INVESTMENT APPRAISAL TECHNIQUES

Question 3

Limitations of Investment Apprasial

Answer 3

• Payback limitations; very simple, only looks at speed of payback and dopes not look at profitability
• ARR limitations; Does not take into account the effects of time on the value of money
• NPV limitations; Very complex, not used by small business, also results dependent on rate of discount used, the higher the rate the more likely it is that the project will be rejected as unprofitable