1299714
Description
Mind Map by niall.mackay, updated more than 1 year ago
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Created by niall.mackay
over 9 years ago
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Investment Appraisal
- General
- Definition = the use of financial data to make decisions about investment ptojects
- Purpose = assessing the value of an investment project
- Value = businesses need to know whether it is worth the money
- Combined use = can use all three to get holistic view
- Limitations = only as accurate as the data used
- Definition = the use of financial data to make decisions about investment ptojects
- Payback Period
- Definition = the time it takes a project to repay its orginal investment
- Formula = cost of project/average net cash flow
- Analysis = less time is better
- Evaluation
- Limitations = ignores
cashflow after Pay back
period
- Benefits = simple to calulate and understand
+ good for projects with short lifespan
- Limitations = ignores
cashflow after Pay back
period
- Definition = the time it takes a project to repay its orginal investment
- Accounting Rate of Return
- Formula= average net cash flow/cost of project
- Analysis = HIgher % better
- Evaluation
- Limitations= ignores the timing of the cash flows
- Benefits = Focuses on
profitablilty & easy to
understand
- Limitations= ignores the timing of the cash flows
- Definition= comparison of the average annual profit
generated by an investment with the amout of money
invested into it.
- Formula= average net cash flow/cost of project
- Net Present Value
- Formula = Total discounted cash flow - Cost of project
- Definition= The present vales of all the money coming in from the project in the future
- Evaluation
- Benefits= Can consider different scenarios
- Limitations= Can only be compared if the
initial investment is the same
- Benefits= Can consider different scenarios
- Analysis = HIgher £ is better
- Formula = Total discounted cash flow - Cost of project
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