Project appraisal techniques and methods vary in their importance and significance therefore their use is also dependent upon what are the intended objectives of the finance managers while assessing and evaluating projects. It is also important to note that the basic method which is now being widely accepted as more credible mean of project appraisals is based on the time value of money concepts. Since the project appraisal methods include both the TVM and non- TVM based methods therefore it is up to the finance managers to decide what basic philosophy and method they intend to apply.
Return on Investment is one of the several methods of making project appraisals. The basic philosophy behind this method is the fact that finance managers take the expected gains from the project with comparison to the total investment cost of the project. The basic formula for calculating Return on Investment is:
ROI is preferred method because of its simplicity. It is to calculate and can be handy and a quick mean of having a look at the overall value addition capability of the investment made. The basic criteria to judge the suitability of the project through this method is the fact that if ROI is positive than the proposed project may be undertaken.
It is also important to mention that ROI may not be the most sophisticated ...Show more