Cut out these strength and weakness cards and decide which method of investment appraisal they apply to. Indicates length of time the Measures the financial return on Makes an allowance for the capital outlay is at risk a project opportunity cost of investing Biased in favour of short-term Allows the direct comparison of Takes into account the timing of projects returns cash flows Particularly important if firm has Of particular interest to Considers the time value cash flow difficulties owners/shareholders of money Relevant to firms who need Very difficult to be accurate in Ignores the timing of cash flows quick returns the long term Does not account for fluctuations Complex calculations, easily Ignores the timing of cash flows in returns misunderstood Does not compare expected Important when profitability, Excludes income after payback returns with the cost of rather than cash flow, is an investment Does not calculate financial Shows absolute Shows investment yield returns increase/decrease in wealth For valid comparisons to be Takes into account the effects of made options need to have Gives percentage return inflation similar levels of start-up capital Calculates returns without relying Can validly compare investments Of particular interest to banks on the need to choose an with significantly different and other lenders accurate discount rate amounts of start-up capital
Cut out these strength and weakness cards and decide which method of investment appraisal they apply to. Indicates length of time the capital outlay is at risk Measures the financial return on a project Makes an allowance for the opportunity cost of investing Biased in favour of short-term projects Allows the direct comparison of returns Takes into account the timing of cash flows Particularly important if firm has cash flow difficulties Of particular interest to owners/shareholders Considers the time value of money Relevant to firms who need quick returns Ignores the timing of cash flows Very difficult to be accurate in the long term Ignores the timing of cash flows Does not account for fluctuations in returns Complex calculations, easily misunderstood Excludes income after payback Important when profitability, rather than cash flow, is an Does not compare expected returns with the cost of investment Does not calculate financial returns Shows investment yield Shows absolute increase/decrease in wealth For valid comparisons to be made options need to have similar levels of start-up capital Gives percentage return Takes into account the effects of inflation Of particular interest to banks and other lenders Calculates returns without relying on the need to choose an accurate discount rate Can validly compare investments with significantly different amounts of start-up capital