Explain two investment appraisal techniques Johnson Boxes could use to assess the profitability of buying the new machinery from Cook Technology.

Investment appraisal is an evaluation of the attractiveness of an investment proposal and can be done via several methods. To measure the profitability of buying the new machinery from Cook Technology Tim Johnson could use ARR (average rate of return). ARR shows the rate of return on an investment that is calculated by taking the total cash inflows over the life of the investment and dividing it by the number of years in the life of the investment. (net earnings / total years) / initial acquisition cost. The average rate of return does not guarantee that the cash inflows are the same in a given year; it simply guarantees that the return averages out to the average rate of return.Another technique of investment appraisal that may be used is Net Present Value. Net present value is the present value of the cash flows at the required rate of return of your project compared to your initial investment. -       Determine your initial investment.-        Determine a time period to analyse.-       Estimate your cash inflow for each time period.-        Determine the appropriate discount rate.-       Discount your cash inflows.-        Sum your discounted cash flows and subtract your initial investment.This is usually calculated through an extended formula.