Edexcel Business A Level Revision

Investment Appraisal -  The use of numerical techniques to predict the financial outcomes of potential capital investments. Average Rate of Return (ARR) -   looks at the  total accounting return for a project  to see if it meets the target return Business investment projects need to earn a satisfactory rate of return if they are to justify their allocation of scarce capital. FORMULA  - AVERAGE RATE OF RETURN (TOTAL NET CASH FLOW / NUMBER OF YEARS) / INITIAL INVESTMENT X 100 = ARR% Interpretation of ARR revolves around comparison with other projects and should take into account the level of risk and the period of time over which the return is forecast to take place. If the investment was funded by outside investments they would compare the ARR with potential returns on other investments as well as the potential risks. For example the least risky investment may be to place the money in a bank deposit account, but the ARR on such an investment might only...

Inflation - A sustained increase in the general level of prices within an economy, there is a fall in the value of money. It is measured by recording price changes for a wide range of goods and services likely to be bought by average families. Consumer price index - A measure that examines the weighted average of prices of a basket of consumer good/ services. Disinflation - This is when a lower inflation rate causes prices to rise more slowly Deflation - A decline in the general price level in an economy, characterised by an inflation rate that is lower than 0% Hyperinflation - A period of very high inflation rates, usually leading to a loss of confidence in an economy's currency Inflation rate - The annual rate of change of the average price of goods and services   Inflation can be a serious problem. it creates uncertainty and instability because it is hard to know whether it will accelerate or slow down.  It is measured by the annual percentage change in consume...