Joint Venture Investment Appraisal Report Free Essay Example, 2750 words

For high capital investments that require longer periods of time to generate higher cash flow may not favor this method of evaluation. This method suits short-term investments. This method compares the cost of an investment with the profit generated by the investment (Hansen Mowen, 2007). This method simply is a ratio of Annual return or profit to initial cost of investment. Its simplicity offers several limitations as it requires a benchmark rate for comparison. An investor needs to know what percentage return is worth investing in. There is no measure or initial method to determine what is the right investment return. It ignores the time value of money just like Payback method. These two methods are called discount methods. NPV calculates the net value of the investment while taking into consideration the changing value of cash. This method tries to calculate the amount need to be invested to attain certain annual revenue in a specified period of time. The value of money will be affected by interest rates payable on a certain investment. This method is good in comparing alternative investments. NPV assumes a constant capital gearing. We will write a custom essay sample on Joint Venture Investment Appraisal Report or any topic specifically for you Only $17.96 $11.86/page