53 Investment appraisal

Question 1

Payback period calculation

Answer 1

Cumulative net cash flow

Then,

(Amount required/Cumulative cash flow (in year)) x 12

Question 2

Average (accounting) Rate of Return (ARR) calculation (%)

Answer 2

1. ) Total net cash flow - Capital outlay
2. ) Profit / Number of years
3. ) (Net profit / Capital outlay) x 100