Subjects

Careers

Open the App

Subjects

Fun Ways to Explore Investment Appraisal for Year 2

Open

1

0

J

JT11

04/04/2023

Business

investment appraisal business

Fun Ways to Explore Investment Appraisal for Year 2

Investment appraisal is a crucial process for evaluating the worthiness of investment projects. This guide explores three main investment appraisal year 2 analysis methods: payback period, average rate of return, and discounted cash flow (NPV).

• Payback period measures the time it takes to recover the initial investment.
• Average rate of return calculates the total average return as a percentage of the initial investment.
• Discounted cash flow (NPV) considers the time value of money by calculating the present value of future cash flows.

Each method has its benefits and drawbacks, providing different perspectives on investment decisions.

...

04/04/2023

84

Investment Appraisal Year 2
analysing
whether
Investment projects are worth while.
The process of
3 main.
Payback period
•The time
Initial
A

View

Average Rate of Return Calculation

This page delves deeper into the average rate of return calculation in investment projects, providing a step-by-step guide and discussing its benefits and drawbacks.

The average rate of return ARRARR is calculated using the formula: Averagenetreturnperannum/CapitaloutlayAverage net return per annum / Capital outlay x 100. This method provides a percentage that can be compared against a target set by the business.

Example: If a project has an initial cost of 1,000,000andgeneratesatotalnetcashflowof1,000,000 and generates a total net cash flow of 1,750,000 over 5 years, the ARR would be calculated as follows: (1,750,0001,000,000(1,750,000 - 1,000,000 / 5) / 1,000,000 x 100 = 15%

The ARR method has several benefits. It is simple to understand and calculate, focuses on overall profitability, and allows for easy comparison of predictions. However, it also has drawbacks, such as using shallow numbers, disregarding external factors, and ignoring the timing of returns.

Highlight: The ARR method is particularly useful when comparing multiple projects that exceed the target return, as it provides a clear percentage for comparison.

When using the ARR method, it's important to note that the target return set by the business can be subject to manipulation and may not always be reliable. This emphasizes the need for careful consideration and potentially using multiple appraisal methods when making investment decisions.

Quote: "ARR doesn't help when multiple projects exceed target. It makes a decision."

In conclusion, while the average rate of return calculation provides a straightforward way to assess investment projects, it should be used in conjunction with other methods to get a comprehensive view of an investment's potential.

Can't find what you're looking for? Explore other subjects.

Knowunity is the #1 education app in five European countries

Knowunity has been named a featured story on Apple and has regularly topped the app store charts in the education category in Germany, Italy, Poland, Switzerland, and the United Kingdom. Join Knowunity today and help millions of students around the world.

Ranked #1 Education App

Download in

Google Play

Download in

App Store

Knowunity is the #1 education app in five European countries

4.9+

Average app rating

21 M

Pupils love Knowunity

#1

In education app charts in 17 countries

950 K+

Students have uploaded notes

Still not convinced? See what other students are saying...

iOS User

I love this app so much, I also use it daily. I recommend Knowunity to everyone!!! I went from a D to an A with it :D

Philip, iOS User

The app is very simple and well designed. So far I have always found everything I was looking for :D

Lena, iOS user

I love this app ❤️ I actually use it every time I study.

 

Business

84

4 Apr 2023

2 pages

Fun Ways to Explore Investment Appraisal for Year 2

J

JT11

@jet11

Investment appraisal is a crucial process for evaluating the worthiness of investment projects. This guide explores three main investment appraisal year 2 analysis methods: payback period, average rate of return, and discounted cash flow (NPV).

• Payback period measures... Show more

Investment Appraisal Year 2
analysing
whether
Investment projects are worth while.
The process of
3 main.
Payback period
•The time
Initial
A

Sign up to see the contentIt's free!

Access to all documents

Improve your grades

Join milions of students

By signing up you accept Terms of Service and Privacy Policy

Average Rate of Return Calculation

This page delves deeper into the average rate of return calculation in investment projects, providing a step-by-step guide and discussing its benefits and drawbacks.

The average rate of return ARRARR is calculated using the formula: Averagenetreturnperannum/CapitaloutlayAverage net return per annum / Capital outlay x 100. This method provides a percentage that can be compared against a target set by the business.

Example: If a project has an initial cost of 1,000,000andgeneratesatotalnetcashflowof1,000,000 and generates a total net cash flow of 1,750,000 over 5 years, the ARR would be calculated as follows: (1,750,0001,000,000(1,750,000 - 1,000,000 / 5) / 1,000,000 x 100 = 15%

The ARR method has several benefits. It is simple to understand and calculate, focuses on overall profitability, and allows for easy comparison of predictions. However, it also has drawbacks, such as using shallow numbers, disregarding external factors, and ignoring the timing of returns.

Highlight: The ARR method is particularly useful when comparing multiple projects that exceed the target return, as it provides a clear percentage for comparison.

When using the ARR method, it's important to note that the target return set by the business can be subject to manipulation and may not always be reliable. This emphasizes the need for careful consideration and potentially using multiple appraisal methods when making investment decisions.

Quote: "ARR doesn't help when multiple projects exceed target. It makes a decision."

In conclusion, while the average rate of return calculation provides a straightforward way to assess investment projects, it should be used in conjunction with other methods to get a comprehensive view of an investment's potential.

Investment Appraisal Year 2
analysing
whether
Investment projects are worth while.
The process of
3 main.
Payback period
•The time
Initial
A

Sign up to see the contentIt's free!

Access to all documents

Improve your grades

Join milions of students

By signing up you accept Terms of Service and Privacy Policy

Investment Appraisal Methods

This page introduces three main methods used in investment appraisal: payback period, average rate of return, and discounted cash flow NPVNPV. Each method is briefly explained along with its key characteristics.

The payback period method determines the time required for a project to repay its initial investment. It focuses on the speed of return and is simple to calculate and compare.

Definition: Payback period is the time it takes for a project to generate enough cash flow to recover its initial investment.

The average rate of return calculates the total average return profitprofit as a percentage of the initial investment. This method provides an overview of the project's profitability.

Vocabulary: Average rate of return ARRARR is the total average return divided by the initial investment, expressed as a percentage.

The discounted cash flow NPVNPV method calculates the present value of predicted future cash flows, taking into account the time value of money.

Highlight: The benefits and drawbacks of discounted cash flow NPV include its consideration of the time value of money, but it can be complex to calculate and may not account for external factors.

Each method has its benefits and drawbacks. For example, the payback period is simple and easy to calculate but ignores cash flows after the payback period. The average rate of return focuses on overall profitability but may not consider the timing of returns. The NPV method accounts for the time value of money but can be more complex to calculate.

Example: A project with an initial investment of 100,000thatgenerates100,000 that generates 25,000 in annual cash flows would have a payback period of 4 years 100,000/25,000=4100,000 / 25,000 = 4.

Can't find what you're looking for? Explore other subjects.

Students love us — and so will you.

4.9/5

App Store

4.8/5

Google Play

The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.

Stefan S

iOS user

This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.

Samantha Klich

Android user

Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.

Anna

iOS user

Best app on earth! no words because it’s too good

Thomas R

iOS user

Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.

Basil

Android user

This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.

David K

iOS user

The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!

Sudenaz Ocak

Android user

In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.

Greenlight Bonnie

Android user

very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.

Rohan U

Android user

I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.

Xander S

iOS user

THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮

Elisha

iOS user

This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now

Paul T

iOS user

The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.

Stefan S

iOS user

This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.

Samantha Klich

Android user

Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.

Anna

iOS user

Best app on earth! no words because it’s too good

Thomas R

iOS user

Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.

Basil

Android user

This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.

David K

iOS user

The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!

Sudenaz Ocak

Android user

In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.

Greenlight Bonnie

Android user

very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.

Rohan U

Android user

I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.

Xander S

iOS user

THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮

Elisha

iOS user

This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now

Paul T

iOS user