- Created by: Insia2
- Created on: 13-03-19 09:25
What is it and when do we need it?
What is it?
•A process that helps make decisions on investment choices
When would we need this?
•New products – research and development, promotion
•Reorganisation & retraining
•New production techniques e.g. JIT & Kaizen
Difficulties in Forecasting Costs & Revenues
•Competitors introducing new products or reducing their prices •Tastes and fashions changing •Economic recession
•Unexpected periods of inflation •Rising import prices
Accuracy of forecasts depends on stable economic environment
Investment Appraisal Techniques
What assumptions do they depend on?
•All costs and revenues can be forecast easily and accurately into the future •Key variables e.g. interest rates will not change unexpectedly •Business is seeking maximum profits
What are the 2 factors managers need to consider?
•Total profits earned by investment •How quickly investment will recover its cost