Effective Management Skills – Investment Evaluation Criteria

by | May 13, 2017 | Top Accounting Tutorials | 0 comments

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How To Develop Your Skill For Great Success And Happiness Including Become CPA? | Additional special tips From Admin

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Three steps are involved in the evaluation of an investment:

• Estimation of cash flows

• Estimation of the required rate of return (the cast of capital)

• Application of a decision rule for decision rule for making the choice

Investment decision rule

The investment decision rules may be referred to as capital budgeting techniques, or investment criteria. A sound appraisal technique should be used to measure the economic worth of an investment project. The essential property of a sound technique is that is should maximize the shareholders wealth. The following other characteristics should also be possessed by a sound investment evaluation criterion:

• It should consider all cash flows to determine the true profitability of then project.

• It should provide for an objective and unambiguous way of separate good projects from bad projects.

• It should help ranking of projects according to their true profitability.

• It should recognize the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones.

• It should help to choose among mutually exclusive projects that project which maximizes the shareholders wealth.

• It should be a criterion which is applicable to any conceivable investment project independent of others.

These conditions will be clarified as we discuss the features of various investment criteria in the following posts.

Investment Appraisal Criteria

A number of investment appraisal criteria or capital budgeting techniques are in use of practice. They may be grouped in the following two categories:

1. Discounted cash flow criteria

• Net present value

• Internal rate of return

• Profitability index (PI)

2. Not discounted cash flow criteria

• Payback period

• Accounting rate of return

• Discounted payback period

Discounted payback is a variation of the payback method. It involves discounted method, but it is not a true measure of investment profitability. We will show in our following posts the net present value criterion is the most valid technique of evaluating an investment project. It is consistent with the objective of maximizing the shareholders wealth.

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From Admin and Read More here. A note for you if you pursue CPA licence, KEEP PRACTICE with the MANY WONDER HELPS I showed you. Make sure to check your works after solving simulations. If a Cashflow statement or your consolidation statement is balanced, you know you pass right after sitting for the exams. I hope my information are great and helpful. Implement them. They worked for me. Hey.... turn gray hair to black also guys. Do not forget HEALTH? Skill Advancement is certainly the number 1 crucial and chief issue of acquiring a fact good results in almost all procedures as anyone observed in this contemporary culture along with in Around the globe. As a result privileged to explain with everyone in the next with regards to everything that good Skill level Enhancement is;. precisely how or what ways we operate to accomplish wishes and subsequently one is going to function with what individual prefers to can each day with regard to a total lifetime. Is it so amazing if you are able to build effectively and acquire being successful in what you thought, targeted for, disciplined and did wonders very hard each individual day time and surely you become a CPA, Attorney, an owner of a huge manufacturer or even a health care provider who can easily really contribute fantastic guide and principles to many others, who many, any contemporary culture and city most certainly adored and respected. I can's think I can benefit others to be major high quality level exactly who will contribute critical choices and relief values to society and communities today. How pleased are you if you turned into one similar to so with your own name on the label? I have arrived at SUCCESS and overcome all the complicated portions which is passing the CPA qualifications to be CPA. On top of that, we will also include what are the downfalls, or different issues that could possibly be on your current manner and precisely how I have privately experienced them and will probably demonstrate to you methods to get over them.

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