Investment appraisal Flashcards
1
Q
What is investment appraisal?
A
A technique used to evaluate the potential of an investment.
2
Q
What are the three investment appraisal methods?
A
Payback period, ARR (average rate of return) and NPV (net present value)
3
Q
What is a payback period?
A
The period after an investment until it becomes profitable.
4
Q
What is the formula for payback period?
A
Income needed / contribution per month
5
Q
What is the 3 step guide/formula to finding the average rate of return?
A
1 Identify lifetime profit
2 Divide by number of years
3 Calculate as percentage of initial investment
6
Q
What is the formula for NPV as a value of initial investment?
A
NPV
—————————- x100
initial investment
