Investment And Capital value Economics Project In our presentation, we are going to use an example to explain the following concepts: 1) Investment.

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Presentation transcript:

Investment And Capital value

Economics Project

In our presentation, we are going to use an example to explain the following concepts: 1) Investment 2) Capital Value

Recently, Marie France Bodyline has invited Christy as its spokeswoman. According to the reliable news, it hired Christy for $5,000,000

AH!! YA~~ I agree that Christy is fit. However, why is the firm willing to spend such a great amount of money in hiring her?

In fact, it is an investment !!!

What is investment???

According to Fisher, investment is something you choose to delay consumption. It is the act of balancing consumption over time. It is the portion of current income that is not consumed and is used instead to create income for the future.

As we all know, all the individuals are wealth maximizers, so as Marie France Bodyline. Its spending of $5,000,000 to hire Christy is to delay current consumption, e.g. buying the good that they desired, in order to generate more future income.

As Christy is well known and so she can help them to save lots of information cost. When the women saw the advertisement, they are just dreaming to have a perfect body line as Christy, leading to an increase in Demand for their services.

In order to investigate whether Marie France Bodyline’s investment is worth or not. We need to calculate its capital value.

What is capital value? It is the discounted present value of the expected future income.

Before our investigation, we need to assume that the market interest rate remains constant at 10% in all the years and there is no other costs involved in their production.

Finally, after 1 year when Contract end, there are $80,000,000 generated. We can then calculate its capital value. illustrate of Christy: Capital Value: Y/ (1+r)* =$80,000,000/(1+0.1)¹ =$72,727,272.73

With this capital value, ($72,727,272.73) calculated, we can compare it with the amount of money which Marie France Bodyline spent in hiring Christy ($5,000,000). We find That the firm can gain $67,727,272.73

Conclusion: We can see that through the spending of $5,000,000 Marie France Bodyline can generate future income of $67,727, So it is worth investing.

6A Christine Ho Emmie Lam Candy Lam