Edexcel Business A Level Revision

Investment Appraisal - The use of numerical techniques to predict the financial outcomes of potential capital investments. Net present value - The difference between the present value of the future cash flows and the amount invested in the project. FORMULA  - NET PRESENT VALUE EACH NET CASH FLOW MULTIPLIED BY THE DISCOUNT FACTOR WHICH WILL GIVE YOU THE NPV ADD UP ALL THE NPV'S POSITIVE = ACCEPT PROJECT NEGATIVE = REJECT PROJECT   Interpreting NPV allows for close attention to the value of the return in today's terms so is a more realistic view of any investment. Different interest rates can be applied to reflect the expectations of different investors. After applying the discount factors, the NPV could be positive, which may suggest it is a worthwhile investment, or negative, in which case the investment should be rejected. Advantages Disadvantages Considers all future cash flows The most complicated method compared with Payback...

Variance analysis - Calculating and investigating the difference between actual results and the budget. Variance - arises when there is a difference between actual and budget figures. Management by exception - the process of focusing on activities that require attention and ignoring those that appear to be running smoothly Variances can be either: Positive/favourable (better than expected) Adverse/unfavourable ( worse than expected) A favourable variance might mean that: Expenditure was lower than expected in the budget Profits were higher than expected Income was higher than expected By contrast, an adverse variance might arise because: Expenditure was higher than expected in the budget Profits were lower than expected Income was lower than expected Looking at the sales revenue section, you can see that actual sales of standard product were £15k higher than budget – this is a positive (favourable) variance. Turning to the costs section, act...