6: Making investment decisions Flashcards
1
Q
Investment appraisal:
A
The process of analysing the financial merits of a possible future investment.
2
Q
Payback:
A
Calculation of how long it will take to recoup the cost of an initial investment.
3
Q
Average rate of return (ARR):
A
Average annual profit expressed as a percentage of initial investment.
4
Q
Net present value (NPV):
A
The total net return of an investment stated in today’s monetary value.
5
Q
Discount factor:
A
The rate by which future cash flows are reduced (discounted) to reflect current interest rates.
6
Q
Time value of money:
A
Recognition of the fact that £1 today is worth more than £1 in the future due to a fall in its purchasing power.
7
Q
Investment criteria:
A
A pre-determined target against which to judge an investment.
