Finance 3.8 Investment appraisal

Investing

Investing is the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit

Payback period

the length of time required for an investment project to pay back its initial cost outlay

Average rate of return (AAR)

measures the annual net return on an investment as a percentage of its capital cost

Theory of investment appraisal

Investment appraisal is a tool used by businesses to compare projects, to help them which workout project will best meet their business objectives

Net present value

sum of present values (using discount factor x net cashflow) - original cost