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Flip to reveal answersWhat does payback focus on vs ARR?
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All 20 Flashcards — Comparing investment options
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Question
What does payback focus on vs ARR?
Answer
Payback = how QUICKLY money comes back (risk + cash flow). ARR = how PROFITABLE overall (return).
💡 Hint
Speed vs profit
Question
Name three qualitative factors in investment decisions
Answer
Corporate objectives (strategy fit), risk/uncertainty, environmental/ethical impact, staff implications, market conditions.
💡 Hint
Strategy, risk, ethics, staff, market
Question
Five-step recommendation structure?
Answer
1) Calculate payback + ARR, 2) Compare quantitative results, 3) Consider qualitative factors, 4) Recommend + justify, 5) Acknowledge limitations.
💡 Hint
Calc → Compare → Qual → Recommend → Limits
Question
Payback focuses on ___; ARR focuses on ___
Answer
Payback = cash flow and risk. ARR = profitability.
💡 Hint
Cash vs profit
Question
Why does a recommendation WITHOUT justification score poorly?
Answer
Examiner wants to see WHY you chose it — the reasoning matters more than the choice itself.
💡 Hint
Reasoning > choice
Question
Why can't numbers alone make the decision?
Answer
Non-financial factors (strategy, ethics, risk, market) can't be captured in calculations but matter enormously.
💡 Hint
Numbers miss the big picture
Question
Short payback but low ARR — what does this mean?
Answer
Recovers cash fast but isn't very profitable overall.
💡 Hint
Fast return, low profit
Question
For 10+ mark questions, you MUST use what?
Answer
Both quantitative (calculations) AND qualitative (non-financial) factors — missing either limits marks.
💡 Hint
Quant + qual required
Question
What should Step 5 of a recommendation include?
Answer
Acknowledging limitations — the forecast could be wrong, results depend on assumptions.
💡 Hint
Uncertainty + assumptions
Question
Qualitative factors include: strategy, ethics, risk, ___
Answer
Market conditions and staff implications — non-financial factors affecting the decision.
💡 Hint
Market + staff
Question
Why consider environmental/ethical impact?
Answer
Poor choices can damage reputation, attract regulation, or alienate customers — hurting long-term profit.
💡 Hint
Reputation + regulation risk
Question
Long payback but high ARR — what does this mean?
Answer
More profitable overall but ties up cash for longer — more risk.
💡 Hint
High profit, slow return
Question
The 'best' investment on paper isn't always best in practice. Why?
Answer
Qualitative factors (risk, strategy, ethics, market conditions) can tip the balance.
💡 Hint
Paper vs reality
Question
When recommending, use both ___ and ___ analysis
Answer
Quantitative (calculations) and qualitative (non-financial factors) — missing either limits marks.
💡 Hint
Quant + qual
Question
Why acknowledge uncertainty in your recommendation?
Answer
Cash flow predictions may be wrong — showing awareness of this demonstrates mature analysis.
💡 Hint
Predictions aren't guarantees
Question
Project X: PB 2yr, ARR 8%. Project Y: PB 4yr, ARR 18%. Who chooses X vs Y?
Answer
Cash-strapped start-up → X (needs cash back fast). Well-funded business → Y (higher return).
💡 Hint
Context determines choice
Question
Quick: They may conflict — payback says X, ARR says Y. Then what?
Answer
Consider which measure matters more given the business's context (cash needs, risk appetite, strategy).
💡 Hint
Context decides
Question
Even if the choice seems 'obvious', what must you do?
Answer
Explain your reasoning — the examiner wants to see the thought process, not just the answer.
💡 Hint
Show your thinking
Question
Payback and ARR may give ___ recommendations
Answer
Different/conflicting — which matters more depends on the business's situation and priorities.
💡 Hint
Different answers possible
Question
How do competitor actions affect investment decisions?
Answer
If rivals are investing in similar things, not investing could mean falling behind competitively.
💡 Hint
Keep up or fall behind
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Topic 3.8 hub
Investment appraisal
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