Escolar Documentos
Profissional Documentos
Cultura Documentos
INVESTMENT FUNCTION
Implies real invt- addition to existing stock of real capital assets
(construction of new offices, new factories, building of P & M,
equipments) & addition to inventories
FV1
FV2
FVn
NPV C0
1
2 ...
n
1 i 1 i
1 i
NPV < 0: Reject
NPV > 0: Accept
EXAMPLE
An investment costs Rs 100 lakhs this year and is expected to
yield net returns of Rs 30 lakhs, 40 lakhs & 60 lakhs in the next
three years respectively. Assuming that the interest cost of
money is 10%, calculate the Net Present Value.
30
(1 + .1)
40
(1 +
.1)2
= Rs 6.51 lakhs
Investment is desirable
60
(1 + .1)3
100
EXAMPLE
A machine having an economic life of 5 years yields Rs 1000
every year. Its present cost is Rs 3500 & rate of interest is 12%.
Is it profitable to invest in this machine?
MULTIPLIER (k)
K = Y
I
K = ____1_____
1 MPC
(Derivation)
C + I + I
F
AGGREGATE
PLANNED
EXP,
CONS
INVT
C+I
M
E
Y1
Y2
MPS
0.2
0.8
1.25
0.33
0.67
1.5
0.4
0.6
1.67
0.5
0.5
0.6
0.4
2.5
0.8
0.2
0.9
0.1
10
C = 20 + 0.5 Y
I = Rs 20 Crore
CONTD.
80
20
20
100
20
10
30
110
20
10 + 5
35
115
20
10 + 5 + 2.5
37.5
117.5
20
10 + 5 + 2.5 + 1.25
38.75
118.75
20
20
40
120
AGGREGATE
PLANNED EXP,
CONS, INVT
C + I + I
F
C+I
M
Y1
Y2
MANAGERIAL IMPLICATIONS