RETURN ON INVESTMENT OBJECTIVES

Question 1

What is return in investment

Answer 1

Return On investment - Spending money on things that will enable the organisation to achieve its goals.

Question 2

What can return on investment be shortened to

Answer 2

ROI

Question 3

What are factors determining investment levels

Answer 3

Managers attitude to risk

Market conditions (It might now be worth making the investment if the market conditions are tough)

Competitors actions - You might feel as if you need to invest in new equipment if you’re competitors are also doing so

Level of retained profit - The more retained profit an organisation has = the more ability it has to invest risk free, because it doesn’t have to borrow money, or try and raise it from its owners by selling shares etc

Interest rates or the availability of finance

Expected rate of return on investment - how long will it take for an investment to be paid back

Question 4

Why do companies do investment appraisal

Answer 4

Before a manager or any company will be prepared to invest (diligent companies) it’s a good practise to conduct something called investment appraisal, where managers compare the cost of an investment to the expected revenues that will arise

Question 5

What is investment appraisal

Answer 5

Investment appraisal is a process that managers use to compare the cost of an investment to the expected revenues that will arise

Question 6

How do you calculate return on investment

Answer 6

Revenue - costs of investment divided by total cost of investment multiplied by 100