{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter_10 - Chapter 10 Investment decisions l l l What is...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10: Investment decisions l What is an investment? l Investment appraisal criteria l Advantages and disadvantages of the five investment appraisal methods l Other factors affecting investment decisions l Risk and uncertainty and decision-making- sensitivity analysis
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
an investment requires expenditure on something today that is expected to provide a benefit in the future the decision to make an investment is extremely important because it implies the expectation that expenditure today will generate future cash gains in real terms that greatly exceed the funds spent today What Is An Investment? What Is An Investment?
Image of page 2
What Is An Investment? (2) l To meet the wealth maximization objective: The managers make optimal decisions that are based on the best information available and use of the most appropriate appraisal techniques.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
The Five Main Investment Appraisal Criteria Methods The Five Main Investment Appraisal Criteria Methods
Image of page 4
Accounting Rate Of Return (ARR) l ARR is a simple measure, sometime used l It is a form of return on capital employed l It is based on profit rather than cash flows l It ignores the time value of money. % 100 * Investment Initial project the over profit accounting Average ARR =
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
the number of years it takes the cash inflows from a capital investment project to equal the cash outflows Payback Payback
Image of page 6
Key Principles Underlying Investment Selection Criteria for NPV, IRR, and discounted payback (1) l Cash is King l Time Value of Money l Discounted Cash Flow
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CASH IS KING real funds flows can be seen in cash but not in accounting profit
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}