Investement Decision Flashcards
Steps of Investment Process
1 . Stimulation
- Detailed Description
- Compilation of all possible Alternatives
- Preselection
- Preselection
- Realization
- Regulation
- Monitoring / Verification
Stimulation
- Internal
- External
Detailed Description
- Objectives
- Technical Specification
- Estimation of Costs
- Estimation of the Impact on Profits
Compilation of all possible Alternatives
- Leasing vs. Buying
- Make vs. Buy
- Alternative Distribution Channels
Preselection
- Detailed analysis, rough Preselection and Evaluation
Realization
- Acquisition
- Utilization phase
Regulation
- Controlling System to check-up, to be able to achieve the Investment Objectives
Monitoring / Verification
- Action Control
- Results Control
What is an Investment?
Capital expenditure
Payment-flow or assets oriented definition of capital expenditures
Two sides of a Balance Sheet
Left: Assets
Right: Liabilities
CE influence on the performance of the company
- Long-term time frame
- capital lock up
- rigid cost structure
- high quantity of data associated
- Scarcity of funds- Wrong decisions have a strong impact on the operating result
Types of Investment decisions
- Singular investment decision
- Selection decision
- Replacement decision
- Decision concerning the optimal point in time for replacement
- Decision on useful life expectancy
Two main methods of reinvestment analysis
- Static Techniques
- Dynamic Techniques
Dynamic Reinvestment Analysis: Points of criticism
- Problem of uncertainty
- Problem of attribution
- Problem of rate of return
- Decision problem
Net Present Value
Value of cash flows discounted to the beginning of the planning period.
Income = Sum(income_t * (1+I)^-t)
Future Value
Value of the cash to the end of the planning period
FV = Income * (1+i)^t
Annuity Method
NPV * (i / (1-(1+i)^-t))
Internal Rate of Return Method
Calculate the interest rate at which the investment is profitable
Modified Internal Rate of Return
All Incomes are reinvested when they are received. nroot(FV/investement) -1
Asset Future Value Method
All positives Incomes are written to one Account and the negative income to another one (FV). At the end they are added.
Interest of Debt Method
s+ AFV *( (s–s+) / (AFV–AFV+) )
Methode of complete financial budgets
Many possibilities of credit financing
