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Investment appraisal techniques

Does consider the time value of money. Fairly complex.

A measure of absolute profitability. Not well understood by non-financial
managers.

Considers cash flows. It may be difficult to determine the cost of
capital.

Considers the whole life of the project. Only considers the long-term, so may
lead to short-term demotivation.

A company selecting projects on the
basis of NPV maximisation should
maximise shareholders’ wealth.

The technique can easily account for risk.

Illustrations and further practice

Now try example 4 ‘Mickey Ltd’ from Chapter 10.

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