Investment Appraisal Techniques Quiz

Net Present Value

Payback Period

Internal Rate of Return

Discounted Cash Flow

Uses discounted cash flows

Is difficult to calculate

Uses profit instead of cash flows

Considers the time value of money

ARR

IRR

Payback

CBA

Unfavorable

Risk-free

Acceptable

Impossible

The project recovers its cost

The IRR is negative

The project adds value to the business

The project has a high ARR

ARR

Payback Period

NPV

ROI

Maximize payback time

Compare costs with qualitative benefits only

Determine whether the social benefits outweigh the costs

Ignore externalities

The cheapest option

The option with the highest ARR

Optimal use of resources to achieve intended outcomes

Shortest payback period

Short-term finance has a higher interest rate

Short-term finance is for over 10 years

Long-term finance usually involves fixed assets

Long-term finance cannot be used for working capital

To avoid long-term tax liabilities

To reduce currency fluctuation

To ensure liquidity and solvency are maintained

To satisfy equity shareholders