Financial Review And Dynamic Methods

*Note : I am going to add my Corporate Strategy Assigment when i was at the university about Financial Investment Methods. Enjoy it :)

PART -3

1.   FINANCIAL REVIEW & DYNAMIC METHODS

All expenditures made for investment projects, investment costs, operating costs, completion and renovation costs usually do not occur within a year, they occur piece by piece at various times in the economic life of the project.

Similarly, the expected revenue flows will be charged step by step in the economic life of the project. In addition, we know that a unit of the revenue will not be the same value with a unit cost, which obtained different times. Then, the resulting revenue and costs in different periods are reduced similar and homogeneous for a specific period. According the dynamic evaluation methods, revenues, all the costs be taken into account and the scrap value are estimated during the economic life of the project. Therefore, to predict the cost series, yield series in this period and the economic life of the project would be obtained. It is clear that not easy to estimate this. Because cash inflows and outflows is not enough just to predict the global level, it is necessary to estimate the needs in the course of their periods.

The main feature of the dynamic methods used in valuation of investment projects for investors that to consider the calculations time value of money. The plain meaning of the time value of money, the revenue that is at the provided capital in the process cycle or that should be used to collect an undue cost

What is the importance of taking into account of the time value of money to invest?

Expenditures for the investment project and financial revenues in the useful life of the investment are calculated by taking into account of the time value of money. It is necessary to reduce the same level of investment related cash inflows and outflows to make a meaningful comparison. On the other hand, all the countries of the world more or less in the presence of inflation at the real value of money require the calculation over the long-term investments.

The main dynamic valuation methods are:

·    Net Present Value Method ( NPV )

·    Payback Period

·    The accounting rate of return ( ARR )

·    Internal Rate of Return ( IRR )