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investment apprisal - Coggle Diagram
investment apprisal
net present value of dicsounted value
present value of future cash inflows - present value future cash outflow
monry loss value over time its worth less inthe future.
discount factor - >
[osotive - > investment worthwhile
negative - > investment is not worthwhile
dicsount cash flow = net cash flow imes 10 % disocunt facotr
pros; opportunity costs of money
consisders inflaion and time
discount tables are used to calcuate forceast future values of net cashflows
cons - more complicated to calciaye and interpety thtan the other methods arr and simple payback
selectng accuate siscount rate challeneging - little difference can create a big change in results , only considers financail benefits not non finsncal benefts e.g. envioenemntal damage.
a range of sceanris can be conssiered. due to different discount tables. to adjust the level of risk invelved in a project,
cons for payback
no insgiht into the profuability of the investment.
only considers total amount of time to cpnsusder the inestment.
dosn't consider timings or interest or inflation
potential investments might be dismjseed if they take longer to pay back thatn alternaives.
pros; - identify at points investment will be paid back
simple and easy to calcuate and unserdtsand
also useful when new techniology is introduced reglary.
average rates of return
easiest out of the investment apprasials
compares avrage profit per year that the invstment makes comapred to how much you paid fr the investment. always going to be a percentage.
average annual return / initial outlay times 100
if 15 years dvide by 15 to find average
pros: it considers all of the net cash flows generated by an investment over time.
easy to undertsnad because its a % - > to easy to compare to other %s.
cons: focus = average cash flow - > ignores timings of cash flows.
doesn't take into account interst rates, time or inflation
higher percentage = more of a rate of return
comparing the money the investment makes us v.s. how much we paid for the invstment.
simple payback period: the time it takes to pay itself.
payback period formula = initial cash outlay / net cash inflown
table = last one that it is not a negative
when paid of 2000, paid off that much
how much it costs to payback like a machoery