35 Investment appraisal
‘There is nothing so disastrous as a rational investment policy in an irrational world.’
John Maynard Keynes, English economist
In a nutshell
Capital investment, i.e. money, is required for most business opportunities, for example purchasing a new long-term asset, developing a new product, entering a new market or acquiring another entity. An organisation will need to invest cash today in expectation of future returns.
There should be a process to evaluate opportunities to see if their benefit is greater than their cost and also which projects should receive priority where capital is limited. This process is known as ‘investment appraisal’.
The main benefits from an investment are its future net cash inflows. Its two ...