Managerial Accounting

NGFL WALES BUSINESS STUDIES A LEVEL RESOURCES.

2008 Spec. Issue 2 Sept.

rogue 1

Investment Appraisal
Specification requirementâ€" Payback, average

rate of return (ARR) and discounted interchange feed in (DCF), net present value (NPV). Quantitative and soft factors affecting decision making.

Payback.
The payback method of enthronisation judgment is used to comp ar projects that may be competing for a businesss visible(prenominal) enthronement capital. With the payback method, the project that returns the initial cost of the coronation first is chosen. If a project costs £20,000 and net immediate payment flows generated by the project are £10,000 a year, it is easy to enamor that the project pays back the cost of the initial seatment later on 2 years. The payback method is especially useful if applied science is changing rapidly, e.g. in IT based businesses, or where cash flow and liquidity is important. Method of calculation of payback. The payback period is the get of time taken for the net cash flow resulting from an investment to match (=), the initial cost of the investment. A business is potfulvass two alternative investment projects. Project 1, an investment in new machinery costs £90,000, Project 2, purchase of a retail outlet costs £110,000. The expected net cash flows from all(prenominal) project are shown on page 2.



Remember that payback will select the project that repays the initial outlay first. To guess the payback period for each investment we: 1. Create a table for each investment alternative. Give the table headings. Column

What is investment?
Investment means the purchase of capital goods. Capital goods are goods that are used to produce other goods. Investment can be: autonomous - the replacement of worn out goods, or induced - new investment arising from magnification. Examples of why firms will invest include: replace worn out capital equipment expansion reaction to competitors availability of new technology

Investment Appraisal
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