Investment decision process slideshare

Most organizations have many projects that could potentially be financially rewarding. Interest rates can be outweighed by economic conditions. Long-term changes in technology can influence the attractiveness of investment. Cancel Download. Inflation In the long-term, inflation rates can have an influence on investment.

Some of the most important methods that are used for taking investment decisions under risk are as follows:. Sensitivity Analysis decisin. Scenario Analysis 3. Decision Tree Analysis 4. Break-Even Analysis 5. Risk-Adjusted Discount Rate Method 6. Certainty-Equivalent Analysis.

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This article throws light upon the four main steps involved in investment process. The steps are: 1. Investment Policy 2. Investment Analysis 3. Valuation of Securities 4. Portfolio Constructio. The first stage determines and involves personal financial affairs and objectives before making investments.

Presentation on theme: «Lecture 1 Understanding Investment Investment decision process.»— Presentation transcript:

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Gupta Lecture: IV procexs Earnings vs. Need cash to build a plant, not earnings. So earnings can be what you want inestment to be, while cash flows are what you receive in your bank account, and are hence much more real and transparent.

Gupta Lecture: IV 5 Payback Period The payback period for a project is the length of time it will take for nominal cash flows from the project to cover investment decision process slideshare initial investment. Then, payback period is between 2 and 3 years, and can be approximated to be 2. Usually, a maximum acceptable payback period is set — projects that payback their initial investment sooner than the maximum are accepted, whereas projects that do not are rejected.

This can lead to absurdities — consider two projects: A -1,,10, — 3 yrs B -1,,- 2 yrs would you pick B? Gupta Lecture: IV 7 Discounted Payback Period It is the number of periods at the end of which the discounted cash flows cumulate to cover the initial investment. A poor compromise between Payback period method and NPV. Just that it uses accounting numbers that are readily available. Hence, need to look at the NPV profile to make the right decision.

IRR — Which one invesfment use? As firms go public and grow, they are much more likely to gain from using NPV. Implicit is the assumption that the firm has an infinite investmenh of projects yielding similar IRRs. The solution? Gupta Lecture: IV 17 What do firms actually use?

Summary: No one technique is perfect. Firms should use one primary technique in decision making, but should supplement it with other techniques, depending on the project and business slidesharre. Related documents. Corporate Finance — Midterm. Tentative Outline. Why use NPV? Quiz 1 covers chapter 1 and 3. Your firm is considering the launch of a new product, the XJ5. Capital Budgeting Techniques.

Chapter 13 Other Topics in Capital Budgeting. Sample Questions in Exam 4. Exam 3, Sp Download advertisement. Add this document to collection s. You can add this document to your study collection s Sign in Available only to authorized users. Description optional.

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3.7 68 Factors Influencing Investment Decisions

Also, investment may be required for the standard growth of a investment decision process slideshare. This economy must grow. High and variable inflation tends to create more uncertainty and confusion, with uncertainties over the future cost of investment. Cash conversion cycle Return on capital Economic value added Just-in-time Economic order quantity Discounts and allowances Factoring Reverse factoring. The greater the IRR of the loan, the higher the rate the borrower must pay, so clearly, a lower IRR is preferable in this case. Many projects have a simple cash flow structure, with a negative cash flow at the start, and subsequent cash flows are positive. Hidden categories: All articles with unsourced statements Articles with unsourced statements from July Countries with a prolonged period of low and stable inflation have often experienced higher rates of investment. As interest rates rise, fewer investment projects will be profitable. An example of a project with cash flows investment decision process slideshare do not conform to this pattern is a loan, consisting of a positive cash flow at the beginning, followed by negative cash flows later. It is another factor that makes investment cyclical in nature.