investm appraisal: payback and ARR

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Last updated 12:47 PM on 5/18/26
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6 Terms

1
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Investment appraisal

Assessing the viability of medium/long term projects

Crucial for differentiating between competing project

2
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Advantages of payback

Simple, understandable, relatively quick, cautious especially where capital is rationed

3
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Disadv of payback

Time value of money is not considered

Does not measure profitability

Short term

4
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Accounting rate of return

A ratio of profit to the cost of a project so based on accounting conventions

5
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Adv of ARR

Simple, quick, generates a percentage return over the life of a project

6
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Disadv. Of ARR

Time value of money not considered, based on profit, cannot distinguish b/w projects w same ARR