1. Investment Appraisal
Payback Period:
The length of time required to recover the cost of an investment. The payback period of a given investment
or project is an important determinant of whether to undertake the position or project, as longer payback
periods are typically not desirable for investment positions.
( Amount required in the current year Amount earned in the year ) * 12
( Last -ve value / next +ve value ) * 100
Average / Accounting Rate of Return:
The amount of profit, or return, that an individual can expect based on an investment made. Accounting rate
of return divides the average profit by the initial investment in order to get the ratio or return that can be
expected. This allows an investor or business owner to easily compare the profit potential for projects,
products and investments.
1. Add up all the +ve cash flows
2. Subtract investment
3. Divide by no. of years
4. ( Answer / investment ) *100
Net Present Value:
The difference between the present value of cash inflows and the present value of cash outflows. NPV
is used in capital budgeting to analyze the profitability of an investment or project.
1. Starting from Year 1, * all cash flows with discount factor
2. Add all values obtained
3. Subtract from initial investment