Investment Appraisal (CLSU) Flashcards
It is an evaluation of the attractiveness of an investment proposal using various methods.
Investment appraisal
Method of investment appraisal
The profits from an investment as a percentage of the initial capital cost
Average rate of return (ARR)
Method of investment appraisal
It uses the opportunity cost to put a value on cash inflows from the capital invested
Net present value (NPV)
Method of investment appraisal
The annual percentage return on an investment when the sum of the discounted cash flows over the life of the investment is equal to the sum of the capital.
Internal Rate of Return (IRR)
Method of investment appraisal
The amount of time needed to repay the initial investment
Payback period (PBP)
It involves the planning of expenditure for the asset, the return from which will be realized in the future period.
Capital budgeting
It refers to long-term planning for proposed capital outlay and their financing.
Capital budgeting
traditional method of capital budgeting appraisal
payback period (PBP) and accounting rate of return (ARR)
discounted cash flow criteria / time adjusted method of capital budgeting appraisal
net present value (NPV)
internal rate of return (IRR)
profitability index method (PI)
it is calculated by dividing the initial investment by annual cash inflows
payback period
it is calculated by dividing dividing the average annual profit by net investment
accounting rate of return (ARR)
It is the present value of benefits (PVB) minus the present value of cost
Net present value (NPV)
