Chapter 29, Investment Appraisal

Question 1

examples of investment

Answer 1

• purchase of machines
• building extensions
• buying another business
• undertaking a larger marketing campaign

Question 2

Payback

Answer 2

measures how quickly the costs of the investment can be paid back
EOY: End of Year
EOY 0: indicates the year when the investment takes place
EOY 1: 1 year after investment
Net Cash Flow: the likely return on investment on a given year
Cumulative Cash inflow: the net amount of cash taking into consideration the initial investment and net cash flow

Question 3

ARR

Answer 3

Accounting rate of return calculates the profitability of an investment

Question 4

Net Present value

Answer 4

same as ARR but considers the value of money over time

Question 5

Non- financial factors affecting investment decisions

qualitative

Answer 5

• resources availability (including workforce)
• The Economy
• Data sources
• whos making the decision

Question 6

Internal rate of return

Answer 6

the discount rate at which the NPV is equal to zero