Investment Appraisal (Quick Revision)

Question 1

Define: Investment appraisal

Answer 1

Investment appraisal are methods of choosing between different investment projects.

Question 2

State three methods of investment appraisal.

Answer 2

• Payback
• Net present value
• Average rate of return

Question 3

State four groups that might be interested in an investment in a new factory.

Answer 3

• Employees
• The local community
• Shareholders
• Suppliers

Question 4

When undertaking an investment, managers will consider the interest rate. Why?

Answer 4

It show opportunity cost and the potential cost of borrowing to finance the project

Question 5

State four other factors that a manager might take into account when considering an investment.

Answer 5

• Initial cost
• Opportunity costs
• Expected returns
• Risk

Question 6

What is the Examiner’s note for Investment appraisal?

Answer 6

It is important to remember that investment appraisal techniques are all based on projections of future inflows, so there is always an element of risk in the decision.

Question 7

What is the Evaluation point for Investment Appraisal?

Answer 7

Investment appraisal techniques are likely to be used with major projects that are expensive and difficult to change or stop once started, rather than with low-budget, small-scale projects that have less risk.