Question

Calculate the net present value of your investment sum over the 3-year time horizon?

a) Positive NPV indicates a profitable investment.
b) NPV is not influenced by inflation.
c) NPV considers the time value of money.
d) NPV formula is unaffected by interest rates.
What principle would be relevant to the understanding of variation of factors of investment in the SR and LR?
a) Law of diminishing returns
b) Time value of money
c) Principle of supply and demand
d) Principle of comparative advantage
By applying relevant managerial principles, show why it would be rational to invest in other investment options other than building flats to resolve this investment choice problem you are confronted with?
a) Managerial principles prioritize short-term gains.
b) Long-term sustainability is a key managerial consideration.
c) Managerial principles are irrelevant in investment decisions.
d) Managerial principles should not consider inflation.
From your calculations and knowledge of managerial principles, mention the type of instruments of investment you would have used here to invest your money if you had adequately evaluated your investment options?
a) Government bonds
b) Real estate investment trusts (REITs)
c) Cryptocurrencies
d) All of the above
Based on your computations and comparisons, which investment option is more technically viable and appealing? Further state the managerial principle you would apply to make an effective and quality decision based on the time horizon.
a) Building flats
b) Other undisclosed investments
c) Both have equal appeal
d) None of the above

Answer 1

Calculating NPV takes into account the time value of money and is influenced by inflation and interest rates. Investment decisions should be guided by principles of long-term sustainability and may involve a diversified portfolio which might include government bonds, REITs, or cryptocurrencies depending on the risk and return profile.

Step-by-step explanation:

When calculating the net present value (NPV) of an investment over a 3-year time horizon, it is essential to understand that NPV is influenced by the time value of money and considers both the rate of return and risk. A positive NPV indeed indicates a profitable investment, while NPV calculations are also affected by inflation and interest rates.

Regarding the principles affecting the variability of investment factors in the short run (SR) and long run (LR), the time value of money is relevant, as it understands that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

With regard to managerial principles guiding investment decisions, long-term sustainability is often a paramount consideration. Managers might rationalize investing in a diverse portfolio, including options like government bonds, real estate investment trusts (REITs), or even cryptocurrencies, based on risk assessment and expected returns compared to the building of flats.

After evaluating investment options, if the calculations suggest a more technically viable and appealing investment option than building flats, managers would apply the principle of time value of money to make an effective and quality decision based on the assessed time horizon. This could involve exploring various financial instruments, such as government bonds, which offer predictable returns, or REITs, which allow investment in real estate without directly buying property, or even cryptocurrencies, though they carry higher risks.