Accounts and Finance: Difference between revisions
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[Amount required / Net Cash Flow in year] x 12 = Payback Period | [Amount required / Net Cash Flow in year] x 12 = Payback Period | ||
== In the UWP == | |||
There is not enough information to make an Average Rate of Return (ARR) or a Payback Period as the case does not explain how much profit would the hospital or the University generate. Maybe a reason why they do not tell us that information is because the intention of those projects are not financial but to be healthy to the community. Also we do not have a net cash flow forecast for each project so the Payback Period is not available for students. In case the IBO gives a cash flow, we just need to analyse the amount of profits the projects are going to be generating to put what we need in a formula. | |||
In the case of Kos, we know how much profits the options available for him are going to be generating, what we do not know is how much does he have to invest so neither the ARR nor the Payback Period can be made. | |||
Revision as of 04:29, 17 April 2012
Quantitative Investment Appraisal
Average rate of return
Average rate of return is a percentage that shows the amount of profit someone gets back from an investment. This takes into account the profit and not the time.
[Net return (profit) per annum / Capital Outlay (cost)] x 100 = ARR
Payback Period
The Payback Period is the amount of time a firm would take to recover the investment made. This takes into account the time and not the profit.
[Amount required / Net Cash Flow in year] x 12 = Payback Period
In the UWP
There is not enough information to make an Average Rate of Return (ARR) or a Payback Period as the case does not explain how much profit would the hospital or the University generate. Maybe a reason why they do not tell us that information is because the intention of those projects are not financial but to be healthy to the community. Also we do not have a net cash flow forecast for each project so the Payback Period is not available for students. In case the IBO gives a cash flow, we just need to analyse the amount of profits the projects are going to be generating to put what we need in a formula. In the case of Kos, we know how much profits the options available for him are going to be generating, what we do not know is how much does he have to invest so neither the ARR nor the Payback Period can be made.