Question

Identify an investment decision that you or someone else has made. (This should be for goods or services for which one or more payments were made in order to receive increased benefits from those goods or services at a later time.)

• How do you think the concept of supply and demand impacted the investment decision? Now that you understand the time value of money, how would you use your problem solving skill (especially critical thinking strategies) to rethink the decision in the future?

Answer 1

Investment decision- The decision of investment was made for a Mobile (Smartphone) repair services company. There were two ways of revenue stream.

1. Revenue from repairing mobile phones.
2. Revenue from annual maintenance contracts (AMC). This included other increased benefits like a back up phone for customers during repairs, free screen guard etc.

Answer part 1- The concept of supply and demand impacted the investment decision in following ways-

• The first three years 2015 to 2018, the business was growing as the demand for mobile service was growing due to the boom in smartphone industry . The majority of the complaints received were of broken mobile screen. The mobile screen's are delicate and the mobile is such a handy device that it often keeps falling from your hand damaging the screen. After warranty the authorized service centers charge a hefty fee for screen replacement and repair. This increased the demand of our mobile repair services which were cheaper compared to the authorized service centers.
• In the year 2019 the business started dropping as the smartphone companies started launching cheaper phones. Now, there was not much of a difference in the cost of repair and a new phone. So the demand for repairs started going down. The revenues started dropping and so did the profitability.
• One more reason why business started facing problems was that, looking at the opportunity and demand, many started opening mobile repair shop.

Initially the Investment decision seemed to be lucrative, as there was a demand in the smartphone repair and service industry. But suddenly in the the third year there was a drop in this demand for mobile repair and service, as the supply of the mobile repairers and cheaper smartphones increased.

Answer part 2-

First lets understand Time Value of Money - This principle based on the thinking that money in hand has more value compared to the

value that is shown in future. For example- Many investor's make their investment decision based on the current offering of return on investment rather than depending on future. The future promise may seem uncertain to them, so they might prefer keeping their money in saving A/C and earn interest, instead of investing in a company that is projecting profit in future.

I would use my problem solving skill (especially critical thinking strategies) to rethink the decision in the future by following ways-

• Critical thinking strategies involve understanding the problem based on logical thinking. For this one needs to analyze a problem based on proper research, using examples and supportings to understand the problem better. Asking various questions related to the problem can help.
• Now as per the case study here, an investor needs to consider time value of money principle to evaluate the future return on investment. While evaluating, one needs to ask questions like How long it will take for the company to break even, what would be the ROI (return on investment), what is the future of this business, How long will the industry survive etc.
• As per the case of investing in the mobile repair company, one has to evaluate based on the future of the industry. Like for example- How long will the mobile repair industry flourish. Is the repairing mobile cost effective compared to buying a new mobile. Is the return on investment better than the interest earned from saving bank account.
• Studying competition- How well is the competitor doing, is he making profit, how long he is been doing business in this industry.
• SWOT (Strength, Weakness, Opportunities and Threats) analysis will help greatly in analyzing any business opportunity.
• Decide a final solution to the problem only after analyzing different solutions and select the best suitable solution.