What are the key considerations in long-term investment appraisal?

Key considerations in long-term investment appraisal include risk, return, liquidity, inflation, and the time value of money.

When considering long-term investments, it's crucial to assess the potential risk and return. Risk refers to the likelihood of not achieving the expected returns, while return is the profit or loss made on an investment. Different investments carry different levels of risk and potential returns. For instance, investing in a start-up company might be riskier than investing in government bonds, but the potential returns could also be much higher.

Liquidity is another important factor. It refers to how quickly an investment can be converted into cash without affecting its market price. Some investments, like property, are less liquid than others, like shares. If you think you might need to access your money quickly, you should consider the liquidity of your investments.

Inflation is a key consideration as it erodes the purchasing power of money over time. If the return on an investment is lower than the rate of inflation, the real value of the investment decreases. Therefore, it's important to consider the potential impact of inflation on your investment returns.

Lastly, the time value of money (TVM) is a crucial concept in long-term investment appraisal. TVM suggests that money available now is worth more than the same amount in the future due to its potential earning capacity. This is why potential future cash flows are discounted back to their present value when appraising an investment.

In conclusion, long-term investment appraisal is a complex process that requires careful consideration of various factors. Understanding these key considerations can help you make informed investment decisions and maximise your potential returns.