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payback period
length of time it takes for the net cash inflows to pay back the original capital cost of investment
net present value (NPV)
today’s value of the estimated net cash flows resulting from an investment
investment appraisal
evaluating the profitability or desirability of an investment project
annual forecast net cash flow
forecast cash inflow minus forecast cash outflows
accounting rate of return (ARR)
measures the annual profitability of an investment as a percentage of the capital cost
ARR %
average annual profit/capital cost * 100
average annual profit
(total returns - capital cost)/number of years
criterion rate
the minimum accounting rate of return (ARR) that a business would accept before approving an investment
Note
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