Studied by 3 people
Payback period
________: length of time it takes for the net cash inflows to pay back the original capital cost of the investment.
Investment appraisal
________: evaluating the profitability or desirability of an investment project.
Net present value
________ (NPV): todays value of the estimated cash flows resulting from an investment.
Investment appraisal
evaluating the profitability or desirability of an investment project
Payback period
length of time it takes for the net cash inflows to pay back the original capital cost of the investment
Net present value (NPV)
todays value of the estimated cash flows resulting from an investment
Investment appraisal
Evaluating the profitability or desirability of an investment project
Initial capital cost of the investment; estimated life expectancy; residual value of the investment; forecasted net returns or net cash flows from the project
4 things that quantitative investment appraisal requires
Payback period; average rate of return; net present value using discounted cash flows
3 methods of quantitative investment appraisal
Payback period
Length of time it takes for the net cash inflows to pay back the original capital cost of the investment
Average rate of return (ARR)
ARR measures the annual profitability of an investment as a percentage of the initial investment
Present value of a future sum of money depends on two factors
The higher the interest rate, the less value future cash has in today's money and the longer into the future cash is received, the less value it has today
Net present value (NPV)
Today's value of the estimated cash flows resulting from an investment
