3.3.2 Investment appraisal
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4 Terms
Investment appraisal
It attempts to determine the value of capital expenditure projects.
How to do paybacks?
Simple - add up the yearly cash flows until this covers the investment.
Complex - If they don’t add up to the exact amount, take the (money still needed/the next cashflow year) x 12
Leave as number of years and months.
How to do ARR?
Add up cash flow from all the years.
Minus original investment cost.
Divide this by the number of years the project runs for.
Now divide by the investment cost, x 100. Leave as a percentage.
How to calculate NPV
Multiply each cash inflow by the discount. Add all the values together and then minus the initial cost.
