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3.8 INVESTMENT APPRAISAL (INTRODUCTION (Quantitative investment appraisal…
3.8 INVESTMENT APPRAISAL
INTRODUCTION
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Investment appraisal is undertaken by using quantitative techniques that assess the financial feasibility of the project
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Investment means purchasing capital goods such as equipment, vehicles and new building
PAYBACK METHOD
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Payback period is the length of time it takes for the net cash inflows to pay back the original capital cost of the investment
Importance of payback
The longer into the future before a project pays back the capital invested in it, the more uncertain the whole investment becomes
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The speedier the payback, more quickly the capital is made available for other project
The more quickly money is returned to an investing company, the higher its real value
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With the method of payback in a certain period, payback period
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FORECASTING CASH FLOWS
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To calculate investment appraisal, forecast cash flow is crucial but it is affected by some external factors such as economic recession, increase in material prices
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