Investment Appraisal At Imperfect Capital Markets

Abstract

Investment decisions are of vital importance to all companies. Thus, effective appraisal methods are most important tools to support the decision-making. Among the most popular methods are the Net Present Value Method, the Internal Rate of Return Method and the Annuity Method, which explicitly consider the time value of money and can be characterized by the assumption of a uniform rate and are connected with the assumption of a perfect capital market.

Aiming at a decision-making process closer to real business life we describe an  investment appraisal method that assumes different credit and debtor interest rates, i.e., that is usable in imperfect capital markets. We exemplify investment appraisal in this market form with a method which visualizes any financial implications in an environment with a high number of different credit and debt interest rates, borrowing lines and other restrictions.  The usage of this method is shown at examples and the appraisal of single investment projects and the comparison of mutually exclusive projects are described.