WorksheetsInvestment Appraisal quiz
Total questions: 10
Worksheet time: 5mins
What does investment appraisal describe?
whether a project is likely to be profitable or not
projects cash inflows
how a business may evaluate a project
how to measure the net return each year
Give an advantage to the payback period method:
Makes use of discounted cash flow
Simple to use
Takes into consideration interest rates
What is the formula for average rate of return? (ARR)
amount required / net cash flow in year
actual sales - trend
net return per annum / cost x 100
(a) is the amount of money spent when setting up a new venture
What is ANOTHER way the payback period can be calculated?
initial investment cost / annual cash flow from investment
cash flow + cash inflows
average profit / capital cost x 100
calculate the cumulative net cash flow
What is the first stage in calculating the ARR (average rate of return)
subtract cost investment
calculate as % of initial cost
divide by lifespan
What is the disadvantage of net present value (NPV)?
Can't be chanted to suit external factors
does not take into account the future values of cash inflows
the discount rate influences the NPV a lot
What is an advantage of net present value?
Less complicated than calculating payback
Time value of money is considered
Estimation of length of time required of an investment
Year 0 shows the
(a)
What are the two reasons for investment appraisal?
accurate estimation of timeframe for efficiency
interest rate comparisons
bring in new assets for expansion
replace old assets for efficiency
