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Capital investment decisions & Term loans
What is a capital investment decision?
A capital investment decision involves committing long-term funds to projects or assets expected to generate returns over several years, such as purchasing machinery or setting up a new branch.
What is the Accounting Rate of Return (ARR) method in capital budgeting?
ARR measures average annual profit as a percentage of investment.
What is the payback period method?
The payback period is the time required to recover the initial investment from the project's cash inflows; it is simple to calculate but ignores the time value of money and cash flows beyond the payback period.
What is the Net Present Value (NPV) decision rule for project acceptance?
Accept project if NPV is positive; reject if negative.
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