Investment Projects (AQA GCSE Business)

Types of Investment Projects

• Over time, businesses need to buy or upgrade assets such as machinery, vehicles or property

  • Businesses may need to buy, renovate, upgrade or extend land and buildings to house their operations

    • Examples include factories, office space, retail stores and warehouses

    • Owning the land and buildings gives them control over these spaces

  • Machinery such as production lines, tools and IT equipment are used in manufacturing and administration processes

    • Initial investments in machinery, as well as upgrades, help to reduce average production costs, increase quality and maintain efficiency

• Businesses also make investments in research and development activities, including:

  • Market research

  • Inventing new materials and processes

  • Developing prototypes

  • Beta testing

  • Test marketing

Calculating the Average Rate of Return

• The Average Rate of Return helps a business determine whether an investment will be worthwhile

  • It compares the average  profit generated each year by an investment with the cost of the investment

• It is expressed as a percentage and calculated using the formula:

• The higher the outcome, the greater the return on investment

  • Investments with high average rates of return are more worthwhile than those with lower rates

Evaluation of Average Rate of Return (ARR)