I agree with the statement that Investment Appraisal add value to the business entity or unit.
Any business to start needs money which we called money in business language or investment, which could be a purchase of machine, assets or building. Every company wants to gain profit. There a question must arise why does a company want to make a profit? There are a several causes behind this:-
1. Survival of the company
2. Re-investment
3. Retained profit
4. Invest in loss projects
Company needs to take a decision for making the investment according to the projects over a period of time. Company takes the decision for a long term basis.
There are for different methods company uses to make an investment in called Investment Appraisal. It is a part of finance. There are two types of investment appraisal are shown below
INVESTMENT APPRAISAL
Where,
ARR= Accounting rate of return
PBP= Pay Back Period
NPV= Net Present Value
IRR= Internal Rate of Return
Pay Back Period: PBP calculates the time of getting the initial investment back over a period of time. The project with a less PBP is accepted. It a easier way to calculate the return period.
It neither takes into account the time value of money nor calculates the cash flows outside of the
Any business to start needs money which we called money in business language or investment, which could be a purchase of machine, assets or building. Every company wants to gain profit. There a question must arise why does a company want to make a profit? There are a several causes behind this:-
1. Survival of the company
2. Re-investment
3. Retained profit
4. Invest in loss projects
Company needs to take a decision for making the investment according to the projects over a period of time. Company takes the decision for a long term basis.
There are for different methods company uses to make an investment in called Investment Appraisal. It is a part of finance. There are two types of investment appraisal are shown below
INVESTMENT APPRAISAL
Where,
ARR= Accounting rate of return
PBP= Pay Back Period
NPV= Net Present Value
IRR= Internal Rate of Return
Pay Back Period: PBP calculates the time of getting the initial investment back over a period of time. The project with a less PBP is accepted. It a easier way to calculate the return period.
It neither takes into account the time value of money nor calculates the cash flows outside of the