1. BASIC MATHS FOR FINANCE
MTH 105

2. INVESTMENT APPRAISAL INVESTMENT APPRAISAL:
A technique or method used to evaluate or assess the profitability of an investment project.
Investment Decisions:
Firms: investments in long term assets such as property, plant, equipment, etc
Individuals

3. Investment Appraisal Decisions should be made carefully because:
Investment require significant cash outflows
Investments are made for a long term

4. Investment Appraisal Net Present Value Method (NPV):
Uses discounted cash flows to evaluate investment projects.

5. NPV METHOD Find the NPV of project 1 given the following:
I : initial investment
r : required rate of return
A, B, C, Z : projected cash inflows
n : no. of years

6. NPV METHOD
Year Project A A B C
n Z

7. NPV METHOD NPV = Present value of – Present value of
Solution:
Find the present value of all cash inflows: (Discount all cash-inflows back to year zero and add).
NPV = Present value of – Present value of
cash inflows cash outflows

8. NPV METHOD
Accept the project if:
NPV ˃ 0 (positive NPV)

9. NPV METHOD
Example: Find the NPV of a hostel investment project given the data below: - Is this project worth pursuing? Initial investment ( I ) = GH 5,000 Required rate of return ( r ) = 10%

10. NPV METHOD
Year Hostel

11. NPV METHOD
Example 2 You want to invest in either a Hostel project or a Hotel project. Given the following data, which would you choose? I = GH 5,000 r = 10%

12. NPV METHOD
Year Hostel project Hotel project

13. NPV METHOD
Two or more investment projects: - Choose the one with the highest NPV