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
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 todays 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 of todays money 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.
