Notes On Investment Appraisal Techniques

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Table of Contents

Executive Summary……………………………………………………………….…2
Investment Appraisal Techniques…………………………………………………..2
Payback…………………………………………………………………………….3
Accounting Rate of Return (ARR)……………………………………………..…4
Net Present Value (NPV)………………………………………………………….5
Internal Rate of Return (IRR)…………………………………………………….6
The decision to use Investment Appraisal………………………………………….7
Conclusion…………………………………………………………………………….7
References…………………………………………………………………………….8

Executive Summary
In this assignment, four widely used of the investment appraisal techniques will be presented. They are all unique in it’s own way in the financial world today.

Investment Appraisal Techniques
Payback is a straightforward technique for evaluates an investment by the length of time it might go for repay it. It 's always been the default option for the smaller businesses and more keen to focus on cash flow instead of just profit.
Accounting Rate of Return (ARR) compares the profits you expect to earn from an investment to the amount you need to invest. The ARR is often calculated as the average annual profit you expect over the lifespan of an investment project, compared with the average amount of capital invested.
Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a projected investment or project.

Internal Rate of Return (IRR) is a metric applies in capital measurement the gain of potential investments. Internal rate of return is a discount rate that makes the NPV of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does.

Payback - Advantages of Payback
The pa...

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...quickest return or gives you the highest annual rate of return.
Risks
A good appraisal considers the risks of things going wrong. If a company is fighting a patent infringement lawsuit, ask what is going to happen if the company loses the lawsuit. If corporate strategy is built around the patents, that may raise the level of risk higher than you can accept. Other uncertainty factors include snagging a government contract, a land deal falling through or the possibility some of the company 's key staff might move on. If the risks are high, they may outweigh the potential rewards.

Conclusion
Payback, Accounting Rate of Return (ARR), Net Present Value (NPV) and Internal Rate of Return (IRR) are very important in terms of calculating an investment appraisal. Each of it carries out a different kind of characteristic and suitable for everyone who interested in investment.

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