Investment appraisal Flashcards
Payback
The time required for the cash inflows from a capital investment project to equal the cash outflows
Mutually exclusive
If two events are mutually exclusive, it means that they cannot both occur at the same time
Residual value
The disposal value of equipment at the end of its life, or its disposal cost
Scrap
Discarded material having some value
Time value of money
Recognises that £1 today is worth more than £1 at a future time, because the £1 can be reinvested today to earn more money over time
Accounting rate of return
A measure of the expected average annual accounting profits from an investment expressed as a percentage of the value of that investment
Discounted cash flow
Converting future sums of money to their present value, which is the cash equivalent now of those future sums
Net present value
The sum of the present value of the benefits (revenues or savings) from an
investment, less the present value of expenditures
Annuity
A constant annual cash flow, for a number of years
Discounted payback method
How long it will take for a project to pay back the capital outlay on a discounted cash flow basis
Perpetuity
A constant annual cash flow that continues forever (a perpetual annuity)
Internal rate of return
The discount rate at which a project has a zero NPV
