| What is Business Investment? | -This is when Money is given to Obtain an Asset that is going to make a Profit, or Income |
| What are Different Types of Business Investments? | -Land and Buildings: Businesses need somewhere to Start up, so that it can make its Goods and Services [25% is spent here usually]
-Machinery: This can make Production more Efficiently, as you can get more Output in a Given Time, while having Consistent Quality ensuring the Machine doesn't mess up
-Vehicles: Making sure your Transport Network is Effective and Reliable can mean Costs are Reduced and Customer Service is Maximised |
| What is the Average Rate of Return [ARR] ? | -This is a QUANTITIAVE Method of seeing if the Investment is Worth it for that Period of Time
-It compares the Projected Average Annual Profit with the Cost of the Investment |
| Give the Formula for ARR? | ARR = Average Annual Profit / Asset Initial Investment x 100 [For a Percentage] |
| John Lewis decides for some reason to spend 50,000 on Vehicles
This Investment is Expected to generate 15,000 per Year, and is to last for 5 Years. Give me the ARR | -First, we want the AVERGE ANNUAL PROFIT so:
-15,000 x 5 = 75,000 [Revenue for 5 Years] - 50,000 = 25,000 [Profit for 5 Years] / 5 = 5,000 [Profit Per Year, Average]
-Now we can Substitute into the Formula for ARR
-5,000 / 50,000 x 100 = 10% |
| What does a High ARR even mean? Why isn't it fully Reliable? | -If its a High Result, then that means more of the Investment will be Turned into a Profit and therefore will need Less Time to Break Even
-This can really affect the Choice of getting the Product, but remember it is always PREDICTIONS |
