Finance Calculating Investment Values When a Firm Essay

Open, View, and/or
Download this Document

Total Length: 686 words ( 2 double-spaced pages)

Total Sources: 0

Page 1 of 2

Finance

Calculating Investment Values

When a firm has a number of investment options but can only undertake one, the firm is likely to undertake some assessments in order to determine which is likely to provide the optimal return. In the first scenario there are three potential factory expansion choices, with the need to determine which will create the greatest value for the firm. The investment levels and the expected net profit per annum have been supplied. This may be used as the basis for a comparison.

The assessment method used is a straightforward approach which looks at the return on the capital to be invested. It is assumed that the firm want to gain the greatest potential return and that there will be other investment opportunities for any capital that is not used to fund the factory expansion.

To calculate the expected return the expected net profit is divided by the capital to be invested and expressed as a percentage. This is shown in table 1.

Table 1; Return on investment

A

B

C

Investment

88,000

36,500

8,000

Expected net profit

13,200

8,000

1,400

Return on investment

15.00%

21.

Stuck Writing Your "Finance Calculating Investment Values When a Firm" Essay?

View All Our Example Finance Calculating Investment Values When a Firm Essay

Have A Custom Example Essay Written

92%

17.50%

This shows that the optimal return will be achieved if the firm chooses option B, as this will provided an expected return of 21.92%. The worst option is option A where there is a return of only 15%.

However, the decision may not be this easy; consideration may also need to be given to the alternatives which may be used with the remaining funds. While it is important to maximize returns, the actual numerical amount realized is important. If the remaining projects that may receive the money have much lower rates, then the amount created by option A may become attractive. Issues such as the term of the investment and the period over which the increased profits may be realized may also have an impact, if different periods of time are associated with the expansion options then tools such as net present value and internal rate of return may be used to make….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Finance Calculating Investment Values When A Firm" (2013, March 18) Retrieved June 5, 2026, from
https://www.aceyourpaper.com/essays/finance-calculating-investment-values-firm-86808

Latest MLA Format (8th edition)

Copy Reference
"Finance Calculating Investment Values When A Firm" 18 March 2013. Web.5 June. 2026. <
https://www.aceyourpaper.com/essays/finance-calculating-investment-values-firm-86808>

Latest Chicago Format (16th edition)

Copy Reference
"Finance Calculating Investment Values When A Firm", 18 March 2013, Accessed.5 June. 2026,
https://www.aceyourpaper.com/essays/finance-calculating-investment-values-firm-86808
   

Open, View, and/or
Download this Document
order custom essay example