Chapter 11 - Investment appraisal - non discounting

Question 1

What are the decision making stages in making an investment?

Answer 1

Question 2

1. What are the 2 non-discounting investment apprasial techniques?
2. What are the 2 discounting investment apprasial techniques?

Answer 2

1. Payback & Accounting rate of return
2. Net present Value & Internal rate of return

Question 3

1. What is the payback period?
2. When will a project be accepted or rejected during the initail stages?

Answer 3

1. The time required to rover initial investment → calculations based on cash flow
2. Payback period < Target period = Accepted

Payback period > Target period - Rejected

Question 4

What is the formula to calculate the payback period.

Answer 4

Payback period = Initial payment / annual cash flow.

Question 5

When anual cash flow is not consant how is payback time calculated? Answer the following question to demonstrate…

Answer 5

Question 6

Answer 6

Question 7

What are the advantages and disadvantages of payback?

Answer 7

Question 8

1. What is the accounting rate of return (ARR)?
2. When will a project be accepted or rejected during the initail stages?

Answer 8

1. An investment apprasial technique that expresses profit of projects as a percentage of capital outlay.
2. ARR > Target rate = Accepted

ARR < Target rate = Rejected

Question 9

1. What are the formula to calculate the initial accounting rate of return?
2. What are the formula to calculate the average accounting rate of return?

Answer 9

Question 10

Answer 10

Question 11

Answer 11

Question 12

What are the advantages and disadvantages of ARR?

Answer 12