BUSN1001 Lecture Notes - Lecture 12: Discounting, Cash Flow, Net Present Value
Document Summary
Capital investment decisions long-term decisions involving the purchase of new equipment and the acquisition or expansion of facilities used in a business. Investment decisions are of crucial importance for the following reasons: Large amounts of resources are often involved, therefore if mistakes are made, the effect can be significant. It is often difficult and expensive to "bail out" of an investment once it has been made. Return: arr methods takes the average accounting profit the investment will generate, arr = average annual net profit/average investment to earn that profit x 100, average investment = (initial investment + expected residual value)/2, decision rules: For any project to be accepted, it must achieve a target arr as a minimum. If there are competing projects that exceed the minimum rate, the one with the highest arr would normally be chosen: advantages, easy to calculate and understand.
