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  • Definition- a process used to determine whether funds given to a business for investment are likely to generate profit
    • Investment Appraisal
      • Purpose of constucting
        • To evaluate the attractiveness of a possible investment.
          • To lower the risk of investing
            • Help make decisions
      • Payback period-the amount of time it takes to recover the initial investment
        • Positives
          • quick, straight forward
            • can pay back before new models come on the market-technology.
        • Negatives
          • does not take into account of money+time value of money
            • doesn't take cash inflows into account after the payback
              • does not measure profitability
      • NPV-assumes that money received invested in the present is worth more than money invested in the future
        • Positives
          • takes into account the price changes that value of money
        • Negatives
          • complex to calculate
            • prone to errors
              • cashflow-estimate
      • ARR-the average annual profit expressed as a % of the initial investment
      • Net profit per annum/initial cost X 100

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