Page 126 - 5.2 i. Manac Finance ITC Summarised Notes

CAPITAL INVESTMENT APPRAISAL

Quantitative analysis of a local capital

investment decision

• In performing a quantitative appraisal of a proposed local

investment, we usually calculate the net present value

(NPV) of the projected investment-related and associated

cash flows (excluding finance related cash flows), by

discounting the cash flows using an appropriate risk-

adjusted discount rate.

• Then, once all quantitative and qualitative factors have been

considered, a capital investment decision is made. (These

concepts are described in detail in the indicated section of

the textbook).

• Next we consider additional considerations when

contemplating the discount rate for foreign investment.

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