Discounting is the process of bringing to the present value the future Net Cash flows that will occur during the lifetime of the project.
Posts published in “Year: 2022”
Compounding is the process of accumulating interest in an investment over time to earn more interest. Interest remains in the bank.
Average Rate of Return (ARR) gives the annual Net Cash Flows (or net profits) from a project as a percentage of the initial cost of the investment.
Payback Period (PBP) gives the length of time required for Net Cash Flows (or net profits) to pay back the initial capital cost of the investment.
Appraising investments is a part of the Capital Budgeting Cycle. Investment Appraisal helps to determine the best investment for a business.
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No professional business manager can afford to ignore other qualitative factors of Investment Appraisal in addition to quantitative factors.
Investment Appraisal assesses attractiveness of different capital projects. Projects usually involve a high expenditure and cannot be reversed.
Setting business budgets and measuring performance against budgets is a very important management function. Budgeting has both advantages and disadvantages.
The most widely used types of budgeting include: Fixed Budgeting (Zero Budgeting and Incremental Budgeting) and Flexible Budgeting.
The process of comparing the actual performance of a business with the budgeted numbers is known as Variance Analysis. What is a variance?
There are many ways to set budgets by a business. These methods may have to be negotiated as there is a natural tendency for managers to inflate budgets.
SMART Budgeting enables a business to have better cost control as costs clearly increase with business expansion. How to Do It?
The Chief Financial Officer (CFO) of a business is in charge of preparing budgets for the whole firm. He is the person in charge of the Finance Department.
Net Present Value (NPV) of An Investment
BUSINESS MANAGEMENT, FINANCE and INVESTMENT APPRAISAL
Net Present Value (NPV) shows the numerical cash value return from the investment project with taking discounting into consideration.