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Finance & Accounting
Pages 11 (2761 words)
Assignment: Finance and Accounting Name: Course: Professor’s Name: Date: Management Accounting Methods of investment appraisal use by Businesses Comparing and contrasting the four main methods of investment appraisal that business use: It is prudent for organizations to completely evaluate every capital investment decisions through sound appraisal methods.
Each of the method has a different approach to evaluating the worth of an investment or project for an organization. Whereas the last three techniques focus on cash flow, the first technique (the accounting rate of return (ARR) also called return on investment (ROI) uses accounting profit during its appraisal calculation, offering a view of the general profitability of the investment project. 1. The accounting rate of return The accounting rate of return also referred to as the return on investment method calculates the estimated general profit or loss concerning an investment project and connects that profit or loss to the amount of capital injected in the project as well as the period for which that investment is required to go. The profit referred to in the appraisal process here is the one that is directly linked to the investment project and, therefore, costs or revenues made elsewhere in the business are not included. There is a minimum rate of return required for any investment that a business wants to undertake. This is connected to the business’s cost of capital. ...
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