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Emma Rudd

Finance and Accounts
Investment Decision Making
Investment is an important term and often entails managers taking major decisions.
Investment can mean a decision to purchase part or all of another business, perhaps as a
result of a takeover bid. However it is perhaps more common to use the…

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Emma Rudd

Tastes and fashions may change resulting in an unexpected slump in demand.
The economy may move into recession or slump (or alternatively into an upswing)
resulting in sales figures radically different from those forecast.

Costs can be equally tricky to forecast. Unexpected periods of inflation, or rising

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Emma Rudd

forecast. Therefore it is important that such an investment earns significantly more
than the rate of interest available from banks etc. If the percentage return was
identical to that on a high-interest account in a building society, then the building
society would represent the better investment as there's…

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Emma Rudd

Discounting is the process of adjusting the value of money received at some future date
to its present value ­ i.e. it's worth today. The rate of interest plays a central role in

The choice of interest rate to be used as the basis for discounting…

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Emma Rudd

Average Rate of Return Measure the profit Ignores the timing of
achieved on projects payments
Allows easy Calculates average
comparison with profits ­ they may
returns on financial fluctuate during the
investments e.g. bank project
Discounted Cash Flow Makes an allowance Choosing the discount
for the opportunity…


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