Theory and models of investment
Importance The research reviews investment models. Objectives The review is aimed to study the common models and new innovation models of evaluation of the efficiency of investment projects on the principle of borrowed capital. Methods In the first part of the paper, I am considering two economic-mathematical models of extended capital reproduction: with discrete and continuous capital reproduction. The article demonstrates that the process of discounting investment essentially reflects a capital growth trajectory as a result of the regulatory capital impact of positive feedback in the economic system of extended capital reproduction. I investigate the interrelation dynamics of capital growth with discounting formula. On the basis of generally accepted methods for evaluating investment performance, I have carried out an analysis of a simple project with investment (asset purchase) at the beginning of the project and the availability of income (sale of the asset) at the end of the project. As per common practice, the project efficiency is assessed on the basis of net present value - NPV and internal rates of return - IRR : the general rule is NPV : if NPV > 0, in that case the project will be adopted. The general rule is IRR : if IRR >, in that case project will be adopted. These rules are simple and versatile. These features comprise their advantages and their shortcomings. But they do not provide any answer to the question: what is the value of an investor's income in money-wise terms? I research a new innovation model of evaluation on the principle of debt capital. The new model is based on the separation of gross income of the project on income of the investor and the interest expense on the loan. Results The theoretical result of the research is a new mathematical proof of the following predicating: IRR is loan rate, at which the gross income of the investment project is spent on paying interest on attracting borrowed capital. The practical result is to create a financial model as a financial picture of the project in Excel software.