Investment Appraisal: The decision making process. Corporate Finance 7. The decision-making process for investment appraisal. Empirical evidence on project appraisal techniques used The calculation of payback, discounted payback and accounting rate of return (ARR)
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Corporate Finance 7
The payback period for a capital investment is the length of time before the cumulated stream of forecasted cash flows equals the initial investment.
Exhibit 4.4 Tradfirm: Net Present Values (£m)
Exhibit 4.5 Discounted payback: Tradfirm plc (£m)
(5,000 + 5,000 + 5,000)/3 ARR = –––––––––––––––––––––– × 100 = 33.33% 15,000
(5,000 + 5,000 + 5,000)/3 ARR = –––––––––––––––––––––– = 16.67%. Accepted 30,000
(5,000 + 5,000 + 5,000 + 1,000)/4 ARR = ––––––––––––––––––––––––––– = 13.33%. Rejected 30,000