Measuring Return On Investments

In chapter 4, we developed a process for estimating costs of equity, debt and capital and presented an argument that the cost of capital is the minimum acceptable hurdle rate. We also argued that a project has to earn a return greater than this hurdle rate to create value to the owners of a business. In this chapter, we turn to the question of how best to measure the return on a project. In doing so, we will attempt to answer the following questions:

• What is a project? In particular, how general is the definition of an investment and what are the different types of investment decisions that firms have to make?

• In measuring the return on a project, should we look at the cash flows generated by the project or at the accounting earnings?

• If the returns on a project are unevenly spread over time, how do we consider (or should we not consider) differences in returns across time?

We will illustrate the basics of investment analysis using three hypothetical projects - an online book ordering service for Bookscape, a new theme park in Thailand for Disney and a plant to manufacture linerboard for Aracruz Cellulose.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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