Page 183 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes  An investment is considered acceptable if its internal rate of return is greater than an
established minimum acceptable rate of return or cost of capital.

10.8 Keywords

Accounting Rate of Return or Simple Rate of Return: It is the ratio of the estimated accounting
profit of a project to its average investment.
Average Accounting Profit: It is the arithmetic mean of accounting income expected to be earned
during each year of the project’s life time.
Discounted Payback Period: It is a capital budgeting technique used to calculate the number of
years it will take an investment or project to break even.

NPV: In finance, the Net Present Value (NPV) or Net Present Worth (NPW) of a time series of cash
flows, both incoming and outgoing, is defined as the sum of the Present Values (PVs) of the
individual cash flows of the same entity.
Payback Period: In capital budgeting refers to the period of time required for the return on an
investment to “repay” the sum of the original investment.
Profitability Index: It is the ratio between a cash outflow on an investment and its prospective
payoff.

10.9 Review Questions

1. Explain about Measuring Project Profitability.
2. What do you Know about Payback Period?
3. Discuss about Accounting Rate of Return.
4. Define the term “ NPV”.
5. Discuss about Internal Rate of Return.

6. Describe about BCR method.
7. Discuss the assessment of various methods.
8. Discuss about the Discount Rate.

9. Describe about the “Decision Rule”.
10. Explain about Accounting Rate of Return.

Answers: Self Assessment

1. PayBack Period 2. Tool
3. Qualifications 4. Measures
5. True 6. False

7. True 8. True
9. True 10. False
11. True 12. False
13. False 14. True

15. True

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