Qualitative Factors Eddecting Inventment Appraisal

Question 1

What is investment appraisal?

Answer 1

Definition:
A method used to evaluate the financial viability of an investment.

Key Types:
1. Payback Period
2. Average Rate of Return (ARR)
3. Net Present Value (NPV)

Question 2

Payback Period

Answer 2

What It Shows:
The time it takes for an investment to recover its initial cost.

Question 3

Advantages of payback period

Answer 3

• Simple to calculate
• Useful for cash flow-focused decisions

Question 4

Disadvantages of payback period

Answer 4

• Ignores profitability after payback
  
  • Doesn’t consider the time value of money

Question 5

Average Rate of Return (ARR)

Answer 5

What It Shows:
The average annual percentage return on investment relative to its initial cost

Question 6

Advantages of Net Present Value (NPV)

Answer 6

Advantages:
* Considers time value of money
* Shows profitability accurately

Question 7

Disadvantages of Net Present Value (NPV)

Answer 7

Disadvantages:
* Complex to calculate
* Relies on accurate discount rate

Question 8

Advantages of Average Rate of Return (ARR)

Answer 8

• Easy to compare with other investments
  
  • Considers total profitability

Question 9

Disadvantages of Average Rate of Return (ARR)

Answer 9

• Ignores cash flow timing
  
  • No time value of money adjustment

Question 10

Net Present Value (NPV)

Answer 10

What It Shows:
The value of future cash flows discounted to their present value, compared to initial investment.

Question 11

Factors Beyond Financial Analysis - Staff

Answer 11

Impact on Staff: Can staff adapt? Will redundancies occur?

Question 12

Ethical Factors

Answer 12

• Environmental impact
• Social responsibility (e.g., fair trade, working conditions)
• Reputation and compliance risks

Question 13

Business Objectives

Answer 13

• Alignment with growth, profitability, or sustainability goals
• Reflects brand positioning (e.g., luxury vs. affordability)
• Consistency with vision and mission

Question 14

Human Resource Issues

Answer 14

• Employee Morale: Will the investment cause redundancies or uncertainty?
  
  • Training Needs: Can staff adapt to new technologies?
  • Cultural Impact: Does it align with company values?
  • Retention: Can ethical or innovative investments attract top talent?

Question 15

Factors Beyond Financial Analysis - Existing products

Answer 15

Existing Products: Will new investments harm current output?

Question 16

Factors Beyond Financial Analysis - Business Objectives

Answer 16

Business Objectives: Does it align with long-term strategy?

Question 17

Factors Beyond Financial Analysis - Economy

Answer 17

Economy: Is demand growing or shrinking?

Question 18

Factors Beyond Financial Analysis - Competitors

Answer 18

Competitors: Are they innovating or investing? (competitive edge)

Question 19

Factors Beyond Financial Analysis - Ethics

Answer 19

Ethics: Could it harm the environment or reputation?

Question 20

Factors Beyond Financial Analysis - Funding

Answer 20

Funding: Can the business afford it without risking cash flow?

Question 21

Factors Beyond Financial Analysis - Technology

Answer 21

Technology: Is new technology driving the investment?

Question 22

Factors Beyond Financial Analysis - Managerial confidence

Answer 22

Managerial Confidence: Are leaders optimistic or risk-averse?