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Investment criteria

Pre-determined conditions laid down by key decision makers within the business that potential investments must meet – for example – a certain percentage return, within a certain timeframe. For the majority of firms the investment decisions will be based on financial criteria eg maximum capital outlay, minimum payback period, minimum ARR% or ARR% higher than the rate of interest, positive NPV. Non-financial criteria may, however, also be important and these may stem from within or outside the business eg Non-financial criteria may include reference to the fact that the investment must: Comply with legislation, Match industry standards and codes of practice, Improve its reputation and / or relations with its staff, customers, suppliers, the local community, or other stakeholder group, Strengthen and / or protect the business against anticipated future threats. It should be appreciated that all investment decisions should be based upon a comparison of the costs and benefits – which may or may not be financial. In terms of investment criteria, all investments where the cost is greater than the benefit should obviously be rejected. Only those investments where the cost (financial or other) is less than, or equal to, the benefit (financial or other) should be considered.

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