Investment Appraisal

Investment Appraisal

An evaluation of an investment to determine whether it will be worth while.

Average Rate of Return (ARR)

A method of investment appraisal which measures the net return per annum as a percentage of the initial investment/cost.

ARR =

Net Return (Profit) per annum divided by Capital Outlay Then x100

Payback Period

The amount of time it takes to recover the cost of an investment.

Which ever project returns the initial cost first will be chosen.

Advantages of payback period

Useful when technology changes rapidly, such as agriculture.

It is simple to use

Helps choose the quickest method

Disadvantages of payback period

Cash…