Business Mathematics
16. Investment Decision Applications
MGMT 1001
,LEARNING OBJECTIVES
§ Determine the discounted value of cash flows and choose
between alternative investments on the basis of the
discounted cash flow criterion
§ Determine the net present value (NPV) of a capital
investment project and infer from the net present value
whether a project is feasible
§ Compute the rate of return on investment
2 2
, Evaluation of Capital Expenditure
Estimate all
Project an
anticipated
interest rate Calculate the
future cash
(e.g. market present value
flows flowing
rate, cost of of these cash
from an
capital, desired flows
investment or
rate of return)
project
Undertake a business opportunity if the present value of the
future net cash flows (discounted at the firm’s cost of
capital) is greater than or equal to the initial investment.
3
16. Investment Decision Applications
MGMT 1001
,LEARNING OBJECTIVES
§ Determine the discounted value of cash flows and choose
between alternative investments on the basis of the
discounted cash flow criterion
§ Determine the net present value (NPV) of a capital
investment project and infer from the net present value
whether a project is feasible
§ Compute the rate of return on investment
2 2
, Evaluation of Capital Expenditure
Estimate all
Project an
anticipated
interest rate Calculate the
future cash
(e.g. market present value
flows flowing
rate, cost of of these cash
from an
capital, desired flows
investment or
rate of return)
project
Undertake a business opportunity if the present value of the
future net cash flows (discounted at the firm’s cost of
capital) is greater than or equal to the initial investment.
3
