ABSTRACT
Decisions to build new facilities, upgrade existing facilities, or invest in new equipment have a significant effect on the future financial well-being of an organization. To help make these decisions on an informed basis is a variety of techniques known as capital investment appraisal. Even the untrained manager would intuitively pose the question, ‘If we invest $100,000 in new gym equipment, how long will it take to get our money back?’ The payback method is but one form of capital investment appraisal, and in this chapter, we will look at the traditional method, accounting return on investment, as well as contemporary approaches including the time value of money, discounted cash flows, and the internal rate of return. Using worked examples to demonstrate the principles and applications of the concepts, we will provide readers with a practical overview of what the techniques are, how to use them in practice, and how they can help managers make informed decisions.
