The marketing director of National Midland Mortgage has been arguing with senior management about building a $50 million publishing facility. Other managers are worried about the assumptions in the analysis that support the investment--an increase in the number of mortgages processed and a reduction in processing costs.
What if the mortgage market did not grow as expected?
Should National Midland invest in the publishing facility?
What assumptions might the marketing director have made to make the investment look worthwhile?
Investment refers to the assets for the people or any organization that gives a return in the near future. Investment refers to that amount of money, which is consumed for the long term to get returns from it. Returns may be in the form of interest rate, dividend, rent, and so on.
Answer and Explanation:
- Here, managers make an assumption in the analysis that supports the investment--an increase in the number of mortgages processed and a reduction in processing costs. If the mortgage market did not grow as expected, that implies the same rate of return would be expected.
- National Midland should not invest in the publishing facility as it could be a loss for the financial agencies such as National Midland because it may increase the mortgage process.
- To make the investment worthwhile, the marketing director should record all the transaction for future reference, and include the profit and loss that to be earned in the future investments.
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from Finance 305: Risk ManagementChapter 3 / Lesson 3