Property of Tata Motors
Since the acquisition of Jaguar Land Rover in 2008, Tata Motors has finally begun to invest the company’s fortunes, and it is doing so with a bang! The company has capital investments plans of setting up multiple factories in China, Brazil, and the United States. Please find the article here. These investment projects will amount upwards of a billion pounds, and thus, has extremely high financial risks involved. Why is Tata Motors so optimistic with this investment then? Well, simply because Tata understands the Net Present Value (NPV) [and of course, many more qualitative and quantitative factors] of the revenue generated from its investments..
Net Present Value Property of TutorsOnNet (http://www.tutorsonnet.com/)
The setting up of these factories will allow the company to benefit from various advantages such as a direct entry into lucrative markets while avoiding import tariffs and currency fluctuations. Overall, these factors will greatly enhance the company’s ability to generate profits in the long run. These profits, when adjusted to the present value by accounting for inflation and/or interest rates, must obviously justify the massive capital investment. If the NPV figure wasn’t positive or healthy, it would be unwise to invest in these offshore mega-factories.
The concept of NPV has greatly broadened by ability to understand capital investment, whether on such massive business scales or in my everyday life. Now, I am compelled to think about the present value of any future earnings before making any financial decisions. In a way, it has enhanced my risk assessment skills, and have given my analytic skills greater depth.