Business – 10.3 Investment appraisal – Concept of investment appraisal | e-Consult
10.3 Investment appraisal – Concept of investment appraisal (1 questions)
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Investment appraisal is essential because:
- Scarcity of resources: Capital is limited, so firms must allocate funds to projects that offer the greatest benefit.
- Risk management: Appraisal techniques identify potential financial losses and help assess the probability of success.
- Opportunity cost: By evaluating alternatives, a business ensures it does not forgo more profitable opportunities.
- Strategic alignment: Appraisal checks whether a project supports long‑term objectives and competitive advantage.
- Stakeholder confidence: Transparent evaluation builds trust with investors, lenders, and shareholders.