ACCA/CAT

Basic information

To appraise an investment project, the appraiser must have information about the following relevant areas:

1 Cost of investment project.

2 Estimated life ofproject

3 Estimated net cash inflows from project.

4 Estimated residual value of project at the end of its life if applicable.

5 Costofcapital.

6 Taxation implications of project.

7 Inflation rates and effect on project.

Anyone who has had to plan for a future activity/event should understand that the future is never certain. Bearing this in mind, one must try to predict the future by drawing from past experience and using available information either from published statistics or from other sources. Some of the data required about the project would have to be estimated taking into consideration all available information. The accuracy of these estimated data would have a consequential effect on the final result of the decision, as such care must be taken in making these estimates.

Methods of investment appraisal

When the decision-maker has at his/her disposal basic information about the project as stated above, he/she is then ready to use one or more of the four main methods used in appraising investment projects.

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