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Summary Topic 3.8: Investment Appraisal £13.37
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Summary Topic 3.8: Investment Appraisal
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This file summarizes all relevant information, data, formulas about investment appraisal, such as PBP, ARR, NPV for IB learners

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  • No
  • 3.8
  • May 17, 2023
  • 5
  • 2022/2023
  • Summary

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Festive S

eppra
-




Payback period
-Investment:the purchase of an asset with the potential yield future
to


financial benefits.

Ex:upgrading computer equipment, purchase of a
building....


-Investmentappraisal:the quantitative techniques used to calculate the
financial costs & benefits of an investment
decision.

(differentmethods used assess
to the risks involved in

investmentdecision-making)




3 main methods




Payback period Average rate of return net presentvalue



Payback period (PBP)

the amount of time needed for an earn
projectto
investment enough profit
to repay the initial of
cost the investment.


formula booklet
don'thave
↓)
in



PBP =initial investment
cost ($)
contribution per month ($)


In reality, contribution will be
not

each
constant
year.
->
Calculate PBP using cumulative cash
flow method.

, Qualitative investment
appraisal:judging
whether an investment

projectis worthwhile

through non-numerical
means.




Quantitative investment

appraisal:judging
whether an investment

worthwhile based
projectis
on numerical (financial)
interpretations:PBP, ARR,
NPV.

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