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investment appraisal (NPV (present value of cash inflows less present…

- - - - takes into account the time value
      - directly linked to the assumed objective of maximizing shareholder wealth
      - considers all relevant cash flows
      - provides clear decisions to be made
- - - - disadvantages
        
        ignores the total project return
        
        it ignores the timing of cash flows within the payback period
        
        ignores the time value of money
        
        cannot distinguish between projects with the same payback period
      - advantages
        
        long payback period means that capital is tied up
        
        early payback can enhance liquidity
        
        investment risk is increased with longer payback periods
        
        calculation is quick and simple
        
        easily understood concept
- - - - higher IRR is ideal
        
        disadvantages
        
        takes no account of project length
        
        ignores the time value of money
        
        takes no account of project size
        
        advantages
        
        quick and simple to calculate
        
        takes into account entire project life
        
        can easily be calculated from financial statements
        
        allows more than one project to be compared