ABSTRACT
This chapter describes projects in which companies invest money or other resources with a view to securing benefits at some time in the future. It discusses issues of forecast financial investments and the expected returns on those investments. The chapter concerns the long-term financial evaluation of proposed investment projects. Such evaluations typically lead to the preparation of business plans that will help senior managers in deciding whether or not to commit capital and authorize the project. There are two common approaches to financial appraisal. One is the simple payback or break even method. The other uses one of a range of techniques based on discounting the forecast cash flows. Sensitivity analysis is one way to gain more confidence in the reliability of a project financial appraisal. The process consists of reiterating the discounted cash flow calculations with a slightly changed value for one or more of the parameters to test the effect on the predicted net present value (NPV).
