Making Investment decisions 0.0 / 5 ? Business StudiesFinancial PlanningA2/A-levelAQA Created by: Hayleyginny2345Created on: 13-11-13 08:47 Firms can forecast future earnings arising from an investment with more certainty if 1) The market is stable, 2) Competitors actions are predictable, 3) High - quality data is avaliable 1 of 14 What are the 3 types af appraisal scheme 1) Payback, 2) Average rate of return, 3) Net present value 2 of 14 Payback Evaluates the time taken to recover the original out lay put into an investment (See separate sheet for method) 3 of 14 Average Rate of return Assesses the worth of an investment by calculating the yearly % of sum invested 4 of 14 ARR Calculation Average annual net profit / Initial investment X100 5 of 14 Net Present Value Coverts earnings from an investment into present value 6 of 14 Investment criteria - 2 things 1) rate of the investment & 2) other possible investments 7 of 14 Risk is... The chance of something adverse or bad happening 8 of 14 Investment decisions can go wrong in 2 ways 1) costs may be higher than forcast 2) Sales may be lower 9 of 14 4 Qualitative factors that affect investment decisions 1 - Business's objectives, 2 - The image of the business, 3 - Industrial relations, 4 - Amout of risk a business is willing to accept 10 of 14 The business's objectives Firms seeking to expand market share may be more willing to invest in projects with a higher risk 11 of 14 The image of the business Some b.s seek to appeal to a new age range (Virgin) so invest in projects that will enhance their image 12 of 14 Industrial relations Major investments have significant implications for the work force - redundicies, retraining... 13 of 14 The amout of risk the business is willing to accept This will depend on a number of factors, not least the attitudes of the management team 14 of 14
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