Making Investment Decisions

Definitions from Chapter 6 of AQA A2 Business Textbook

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Making Investment Decisions

Investment Decision Making: The process of deciding whether or not to undertake capital investment (the purchase of non-current assets) or major business projects.

Investment Appraisal: A scientific approach to investment decision making, which investigates the expected financial consequences of an investment, in order o assist the company in it's choices.

Payback Period: The length of time that it takes for an investment to pay for itself from the net returns provided by that particular investment.

Average Rate of Return (ARR): Total net returns divided by the expected lifetime of the investment (usually a number of years), expressed as a percentage of the initial cost of the investment.

Net Present Value (NPV): The net return on an investment when all revenues and costs have been converted to their current worth.

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