3 Pieces of Information needed to make a decision on the investment
1. What is the current interest rate?
2. The rate of the return or the expected return
3. The inflation rate

Investment Criterion that Investors love to consider
 [Survey evidence on the % of CFOs who always use a particular technique for evaluating investment projects, Source: J.R. Graham and C.R.Harvey.]
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These days 75% of firms and investors always calculate Net Present value, “NPV”, when deciding on investment projects
1. Net present value rule
NPV of an investment is the difference between the sum of the discounted cash flows which are expected from the investment and the amount which is initially invested. So NPV is an amount that expresses how much value an investment will result in.
?NPV rule recognizes that a dollar today is worth more than a dollar tomorrow. Any investment rule that dose not recognize the time value of money cannot be sensible.

?NPV depends solely on the forecasted cash flows from the project and the opportunity cost of capital. Any investment rule that is affected by the manger’s tastes, the company’s choice of accounting method, the profitability of the company’s existing business will lead to inferior decision.

Calculation :
1. Determine the discount rate (the opportunity cost investing in our pub rather than in the capital market)
2. Calculate the present value of the cash flows
3. Calculate the NPV of the project by subtracting the investment’s initial cost.
4. NPV = PV – initial investment cost

Decision Rule :
. ? Investors look for investments with higher NPV
 ? If NPV is positive, the project should be accepted.

2. Payback period rule
?Paybac ...