Investment Appraisal: Evaluates if an investment proposal is worth the cash.

• 🎯 Goal: Determine if a business venture is worth pursuing and will make money.
• 🔍 Helps businesses compare different investment opportunities.

• ⏲️ Tells how long it takes for an investment to pay back its starting cost.
• Formula

Payback Period =\(\frac{ Initial\, Investment \,Cost}{Annual \,Cash \,Flow \,from \,Investment}\)

🌍 Real-World Example: 🌍

• Construction Engineer & Cement Mixer
  • Investment = $200,000
  • Annual Cash Flow = $50,000
  • Payback Period = 4 years
  • This means the engineer gets back the money spent on the mixer in 4 years.
• Timber-Cutting Machine
  • Takes 3 years and 6 months to repay a $300,000 investment.
  • More complex due to varying cash flows each year.
• 🥇 Rule of Thumb: Shorter payback periods are generally better.

• 🚀 Quick & easy calculation.
• 🖥️ Useful for fast-changing sectors like tech.
• 💰 Helps businesses with cash flow issues.
• 📆 Good for short-term projections.
• 👩‍💼 Managers love it because it's simple!

• 🛑 Ignores cash earned after the payback period.
• 💵 Focuses only on quick returns, not overall profitability.
• 🌪️ External factors can mess up the numbers.