Investment Appraisel 3.7.8

Question 1

name some financial methods of assessing investment

Answer 1

payback
average rate of return
net present value

Question 2

what is the formula for payback

Answer 2

payback=sum invested/net cash flow per time period
EG:
$60000/$20000 = 3years

Question 3

what is the formula for average rate of return

Answer 3

average annual profit/money invested x100

average annual profit= total net cash flow over the years/ number of years

Question 4

what is the formula for net present value

Answer 4

npv= cash flow x discount factor

Question 5

what is net present value

Answer 5

it calculates the monetary value now of future cash flows

Question 6

factors influencing investment decisions

Answer 6

company objectives ( don’t want short termism)

company finance (might be a better investment but spending too much will damage the business)

confidence in data

social responsibilities

Question 7

what is sensitivity analysis

Answer 7

it is used when assessing the likely outcomes of a decision where quantitative techniques are used. It
determines the viability of the project if some variables deviate from its expected value, such as investments or sales.

Question 8

how does sensititvity analyses work

Answer 8

change one variable at a time and see what happens to the out come you are trying to measure

can be associated with:
cash flow forecasting
breakeven analysis
investment appraisal methods