investment appraisal

investment appraisal

The process of evaluating the desirability of INVESTMENT proposals covering such things as the replacement of worn-out plant and machinery, the establishment of a new factory, the takeover of another company, new product development or a sales promotion campaign.

Generally the desirability of an investment will be considered in terms of the PROFIT it will yield and managers will prefer those investments which promise the largest profit. Alternatively, they could measure the CASH FLOW associated with a project, and award priority to projects which promise the best contribution towards future cash flows. In making investment decisions managers will undertake investments which promise a rate of return greater than the cost of capital needed to finance it.

There are several techniques which can be used to assess investment opportunities, some based upon accounting profit measures, others upon cash flows. These methods include the ACCOUNTING RETURN, PAYBACK PERIOD and DISCOUNTED CASH FLOW.

investment appraisal

the process of evaluating the desirability of INVESTMENT proposals covering such things as the replacement of worn-out plant and machinery, the establishment of a new factory, the takeover of another company, new product development, a sales promotion campaign, a new road or hospital.

Generally, the desirability of a private sector investment will be considered in terms of the PROFIT it might yield, and managers will prefer those investments that promise the largest profit. Alternatively, managers could estimate the CASH FLOWS associated with a project and award priority to projects that promise the best contribution towards future cash flows. There are several techniques that can be used to assess investment opportunities in terms of cash flow, including the PAYBACK PERIOD method and the DISCOUNTED CASH FLOW METHOD. Public sector investment projects can also be assessed in terms of their cash flows, although for such projects the broader SOCIAL COSTS, such as any POLLUTION caused, need to be considered as well as private costs borne by the government (see COST-BENEFIT ANALYSIS).

In making investment decisions, managers will undertake an investment that promises a rate of return greater than the COST OF CAPITAL that is needed to finance it. This involves estimating the cash outflows and inflows associated with an investment and allowing for the different timing of these flows by converting them into their equivalent present values, using an appropriate DISCOUNT RATE.

All investment projects are concerned with future costs/cash flows and future revenues/cash inflows and thus there is inevitably some uncertainty about whether cash flows will turn out to be as estimated at the time a project is assessed (see RISK AND UNCERTAINTY).

References in periodicals archive ?
De Montfort University (DMU) is inviting bids from suitably qualified consultants to complete a return on investment appraisal. The appraisal will be a focused delivering a cultural audit to enable DMU to objectively gather staff perceptions of the current and desired culture of the organisation against a validate framework.
Earlier, he was Executive Director (Corporate Finance) at IndianOil's Corporate Office and was also functioning as the Chief Financial Officer and Chief Risk Officer in-charge of Corporate Accounts, Treasury, Investment Appraisal and Risk Management.
"We will require all MIM schemes to be subject to the rigorous investment appraisal of the Five Case Model - an internationally accredited appraisal tool, co-owned by the Welsh Government.
While this insight holds true for each and every good to be valued, in the case of financial investment decisions, and particularly concerning the purchase of an entire business enterprise or a substantial share package, acting man's final valuation must be based upon both appraisement and investment appraisal (Herbener and Rapp, 2016, pp.
Their topics include fuzzy arithmetic operations, fuzzy simulation techniques, fuzzy consensus and fuzzy aggregation processes for multi-criteria group decision-making problems, the fuzzy analytical hierarchy process in the investment appraisal of drilling methods, modeling risk allocation decisions in public-private partnership contracts using the fuzzy set approach, using an adaptive neuro-fuzzy inference system for tender price index forecasting: a univariate approach, and modeling construction management problems with fuzzy cognitive maps.
In spite of the controversies about its rigidity --especially the ones associated to the Real Options Theory--and about the calculation of the capital cost to be used to discount the future cash flows associated to the project, NPV remains, undoubtedly, the most robust criterion of investment appraisal. In general, it relies on the assumption of discrete cash flows at the end of each period, and most corporate finance textbooks (Ross et al., 1995; Brigham & Houston, 2004; Damodaran, 1998; Gitman, 1997) barely mention the possibility that cash flows might be continuously distributed during the investment's lifetime.
Mr El Nokaly holds a Bachelor's degree in Business Administration from Helwan University, Egypt and has also completed a programme of investment appraisal, risk analysis and project finance at Harvard Business School.
This course equips students with the skills and knowledge to pursue a career in architectural and engineering design, project management, construction management, real estate, asset/facilities management, general business management, and investment appraisal.
The participants were introduced to the key concepts of technology development, business startup and investment appraisal. The training program, which targeted the financial sector and specialized investment institutions, included an overview on the evolution of tech startups in the Saudi market and provided an in-depth understanding of how to evaluate financing and investment proposals in such companies while focusing on practical case studies through the valuation of existing technology companies.
Achieving fiscal sustainability requires prioritization of public investment through rigorous investment appraisal and taking into account existing bottlenecks and absorptive capacity constraints, rationalizing recurrent spending, strengthening non-oil revenues, and adhering to a medium-term fiscal consolidation plan.
They have 60 years of combined experience in energy project development in remote locations, with in-depth hydrology and engineering expertise, and in-depth knowledge of the Philippines' energy sector, 10 years of energy project investment appraisal; and 12 years of energy project work with NGOs.
The literature repeatedly states that the NPV is the 'correct' investment appraisal model when looking to aim at maximising shareholder value, see for example Samuels et.

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