Finance and Accounting-Investment Appraisal

Question 1

What is contribution?

Answer 1

How much of the total each item has to pay towards direct costs.

Question 2

What are the steps for working out contribution?

Answer 2

1) Revenue=no.of unitsxcontract price
2) Revenue of all variable costs
3) Revenue-revenue of all variable costs
4) Do this for all companies

Question 3

what are 2 disadvantages of contribution?

Answer 3

it takes a long time to work out

The company may not actually contribute

Question 4

What is payback?

Answer 4

Measures the time period required for the earning from an investment to recoup it’s original costs.

Question 5

What are the 4 stages of working out payback?

Answer 5

1) Add up first to second year ect until you get the next highest value to the initial cost.
2) Take way that figure from the first to second year answer.
3) Divide that amount by 12 months
4) Add that figure to the figure before the highest one after the initial cost.

Question 6

What is net profit value?

Answer 6

Money decreasing over time, the worth of the money in “real terms”

Question 7

What are the 5 stages of net profit value

Answer 7

1) Use the present value calculations and multiply by the estimated annual return for both projects.
2) Add up all the answers together
3) Take away that by initial cost
4) Divide that figure by amount of years.
5) Then divide that by initial cost and x100.

Question 8

What is average rate of return

Answer 8

Calculating the percentage rate of return on each possible investment

Question 9

What are the 3 stages of working out average rate of return?

Answer 9

1) Work out average profits (add up all returns for all years and divide by no. of years)
2) Divide that number by initial and multiply by 100.

Question 10

What are 4 advantages of the marketing budget?

Answer 10

Helps control costs
Helps identify where costs have been too high
Helps to planner the future
Helps to motivate

Question 11

What are 4 disadvantages of the marketing budget?

Answer 11

Too ambitious so can become unmotivating
Inaccuracy can lead to poor decision making
Conflict with other objectives
Time and expense of setting the budget

Question 12

What are 3 benefits of using a critical path analysis

Answer 12

Efficient because it allows you to see where you can save time and money
Helps to meet critical deadlines
Helps see which processes can be carried out simultaneously

Question 13

What are 3 disadvantages of using a critical path analysis

Answer 13

Costly
Time estimates can be wrong
Doesn’t take into account exogenous shock