Business 3.8 - Investment appraisal

Question 1

formula for average rate of return?

Answer 1

(total profit during project’s lifespan/# of years of project) / initial amount invested

Question 1

average annual profit of an investment project, as a percentage of the initial amount invested

Answer 1

average rate of return (ARR)

Question 2

sum of an investment project’s net cash flow for a particular year and net cash flow of all previous years

Answer 2

cumulative net cash flow

Question 3

capital expenditure or purchase of assets

Answer 3

investment

Question 4

financial decision-making tool that helps managers determine if the investment project is worth

Answer 4

investment appraisal

Question 5

investment appraisal technique that calculates the length of time it takes to earn back the initial expenditure

Answer 5

payback period

Question 6

formula for payback period

Answer 6

initial investment cost/contribution per month

Question 7

original amount spent on an investment project

Answer 7

principal/capital outlay

Question 8

judging if the investment is worth through non-numerical techniques (is it consistent with corporate culture)

Answer 8

qualitative investment appraisal

Question 9

judging whether an investment project based on numerical interpretations (PBR, ARR, NPV)

Answer 9

quantitative investment appraisal