Investment appraisal

In this lesson

1. 0:00 Investment appraisal overview and SPL exam context
2. 0:30 Net present value: concept and decision rules
3. 1:33 NPV key considerations and evaluation
4. 3:06 Internal rate of return: calculation and application
5. 3:47 IRR advantages and limitations
6. 4:21 Accounting rate of return: simplicity and constraints
7. 6:04 Payback period: assessing investment recovery
8. 7:13 Payback period: risk assessment and limitations

About this lesson

and limitations. While you won't conduct full appraisals in the exam, understanding these techniques enables you to evaluate and challenge investment proposals presented in case scenarios, identifying weaknesses and making financially sound recommendations. The lesson breaks down each technique systematically. NPV compares the present value of future cash flows against initial investment, with positive NPV indicating an acceptable project. IRR calculates the discount rate where NPV equals zero and is preferred for complex projects, though it assumes unrealistic reinvestment rates. Accounting Rate of Return offers simplicity by assessing profitability based on accounting profit alone, but ignores cash flow timing and project duration. Payback Period measures how quickly an investment recovers its initial cost, useful for risk assessment but limited because it ignores cash flows beyond the payback threshold. You'll see how these techniques complement each other in real scenarios. NPV and IRR both account for time value of money through discounting, making them suitable for complex, long-term investments. Accounting Rate of Return and Payback Period are simpler but lack depth, making them better for straightforward, short-term decisions. The lesson prepares you to recognise which technique applies to different situations, evaluate the quality of appraisals presented in case studies, and challenge assumptions or weaknesses—a critical skill for demonstrating strategic thinking in SBL assessments.

Duration: 8m