Investment Appraisal
A set of financial techniques used to evaluate whether a capital investment project is financially worthwhile, comparing...
Formula
ARR = (Average Annual Profit / Initial Investment) × 100
Real World
When Tesla decided to build its Berlin Gigafactory, it used NPV analysis to confirm that projected future cash inflows from European EV sales, discounted for risk, exceeded the €5bn construction cost.
Exam Focus
Name the method and state its specific limitation (e.g. ARR ignores timing; Payback ignores post-payback cash flows) for full evaluation marks.
How well did you know this?