Understanding and being able to use capital budgeting techniques and investment appraisal tools is usually a standard requirement for most business degrees. In addition learning such methods will also give one an advantage in a real business situation, in which there is the consideration of a significant capital expenditure project.

Before an Investment Appraisal is Conducted

Before an investment appraisal is conducted, there are a number of points to keep in mind. Whilst the tool presented will give an evaluation of the worth of a project, one should consider that the answer is only a guide. In short, the results of an investment appraisal should be consider in conjunction with both common sense and other qualitative factors such as a businesses overall strategy.

Secondly, before an investment appraisal is conducted, one should consider whether or not a project is mutually exclusive. Where a project is mutually exclusive, then only the best project should be selected. Where on the other hand, projects are independent, one may select all projects which give the appropriate return.

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