itsual Investment Appraisal
Overview
Investment appraisal decides whether committing capital today is justified by future returns and strategic value. It combines quantitative metrics with judgment about risk and alternatives.
When to Use
- Capex and project approval
- Build vs buy vs partner decisions
- New market or product investments
- Portfolio prioritization of initiatives
Core Methods
- NPV (net present value)
- IRR / modified IRR
- Payback and discounted payback
- Strategic and option-value considerations
- Sensitivity and scenario analysis
Principles
- Incremental cash flows only — ignore sunk costs
- Riskier projects need higher hurdles or wider sensitivities
- Strategic fit does not excuse arithmetic fantasy
- Compare against realistic alternatives, including “do nothing”
Verification
- Cash flows are incremental and timed correctly
- Hurdle rate / WACC rationale is stated
- Sensitivities cover the real uncertainties