The Assessment of Cost-effectiveness of Investment

Business case or case study is the basis for making a business decision concerning investing.

event 22.02.2021.
Foto: Unsplash

Based on the assessments of cost-effectiveness, the investor will have a clear picture of the cost-effectiveness of a certain investment, as well as recommendations. Each analysis consists of preliminary market analysis, structure, type, and volume of investment. Ultimately, it gives a clear overview of what is the profitability of investment, i.e. the calculation of return on the investor’s equity capital (IRR – internal rate of return), and in which period it achieves the return on invested capital (PBP – pay back period).

It also indicates a point in time when the revenues completely cover the costs (BEP – break-even point), as well as the current net value of a certain investment (NPV – net present value). With the exception of the indicators that are generally accepted in financial institutions, and further to the assessment of the cost-effectiveness of investment, the analysis itself gives a layman’s explanation, i.e. an interpretation which is comprehensible to each user.

Advantages:

  • determining the cost-effectiveness of a certain investment
  • the development plan of a certain investment
  • reduction of feasibility risk
  • minimization of a potential opportunity cost
  • the basis for making a demanding business decision concerning capital.