Chapter 24 Computing Net Present Value Of Alternate Investments

Interstate Manufacturing is considering either replacing one of its old machines with a fresh machine or having the old machine overhauled. Information about both alternatives follows. Management requires a 10% rate of come back on its investments. Alternative 1: Keep the old machine and have it overhauled. If the old machine is overhauled, it’ll be held for another five years and then sold because of its salvage value. Alternative 2: Sell the old machine and buy a fresh one. The brand new machine is better and will produce substantial operating cost benefits with more product being produced and sold.

You can be mostly one, or you can be mostly the other, but you can’t be both in equal measure. Just how do a marketing company and an investment firm differ? The marketing company has a mad scientists’ laboratory to “incubate” new funds and kill them if they don’t work. The investment company does not.

The marketing company charges a set management charge, no matter what size its funds develop, and it maintains its expenditures unacceptably high. The investment company does not. The marketing firm refuses to close its funds to new traders no matter how unwieldy and large they get. The investment firm will not. The marketing firm hypes the monitor records of its tiniest funds, even though it knows their results will shrink as the funds grow.

The investment company does not. The marketing firm creates new funds because they shall sell, rather than because they are good investments. The investment firm does not. The marketing company promotes its relationship funds on their yield, it flashes “NUMBER 1” for some time period in all its stock fund ads, and it uses mountain graphs as steep as the Alps in all its promotional material. The investment firm will none of these things.

The marketing company pays its stock portfolio managers on the basis not merely of their investment performance but also the property and cash flow of the money. The investment firm does not. The marketing company is looking forward to its existing customers to pay any price, and endure any burden, so an infinite quantity of new customers can be curved up through the so-called mutual fund supermarkets. The investment firm sets limitations. The marketing company will little or nothing at all to alert its clients that marketplaces do not necessarily go up, that previous performance is meaningless almost, and that the markets are riskiest when they appear to be the safest precisely.

  • A possible/potential catalyst for the stock price rise prior to making the investment
  • It reduces the chance of credit scoring activities
  • Set outrageous penetration goals for each target client
  • How can you add gold or other bullion products to a current 401(k) or IRA

The investment firm tells its customers these things again and again and once more. The marketing firm simply desires to git while the gittin’ is good. The investment firm asks, “What would eventually every part of our functions if the markets fell by 67% tomorrow, and what would we do about it? What plans do we need in place to survive it? You must choose Thus.

You can be mainly a marketing company, or you will be mostly an investment firm. But both masters can’t be served by you at exactly the same time. Whatever you share with the main one priority, you must take from the other away. The fund industry is a fiduciary business; I recognize that that’s a two-part term. Yes, you are fiduciaries; and yes, you are businesses that seek to make and maximize income also.

And that’s as it should be. In the long run, however, you are unable to survive as a continuing business unless you are a fiduciary emphatically first. In the short term, it pays off to be primarily a marketing firm, not an investment firm. But in the long term, that’s no chance to build a great business.

Today, tomorrow, and permanently, the right question to ask yourselves is not “Will this sell? ” but “Should we be offering this rather? ” I will praise every fund company which makes that choice based on what’s right for its investors, because I think that standard of judgment is the right standard.

Inform and advise clients on the constantly changing regulatory and compliance issues arising under UK and international securities and taxes law. Provide day-to-day advice regarding issues such as performance and advertising and brokerage and profile trading practices. Small teams mean that trainees can get high degrees of responsibility and client exposure rather than being stuck doing more mundane tasks. You can expect to be engaged in drafting key documents and researching transfer agreements and to play a part in large-scale discussions that could involve hundreds of parties at the same time.