This is a very interesting scene from another cult movie called ‘Andaaz Apna Apna’. If you look at this scene carefully you will be able to relate it to some basic concepts of ‘how businesses make investment choices’.
Paresh Rawal has a lookalike in the movie, One is the Uncle and other is the impostor (Thief). Impostor kidnaps Uncle (his lookalike) thinking he is a good Investment. He assumes he will earn a good return by kidnapping him. He would replace Ramgopal (Uncle) and then go to his house and earn good amount of cash flow on a regular basis. He also asks for 50 lakhs as an upfront payment on the pretense of releasing him from Aamir (Amar) and Salman khan (Prem). Amar and Prem want to impress Uncle as they want to marry his daughters.
In this case, Aamir and Salman khan have no choice but to pay and get Uncle released. They find themselves having only Rs. 8,535.29 instead of Rs. 50 Lakhs.
Similarly businesses normally have to make choices regarding investments in various projects.
So to construct a mall (Project A) or a parking space (Project B), a construction business would have to make a choice. To make the right choice, this business would conduct something called capital budgeting decisions.
Techniques of capital budgeting include NPV (Net Present value), IRR (Internal rate of return), profitability Index ratio etc. If the benefit is more than the investment made then it is a profitable choice while if the benefit would be less than the investment made, the project would be rejected.
In the scene, Aamir mentions to the kidnapper that his plan or choice has not been right. If he would have kidnapped his daughter instead of Ramgopal (Uncle) then it would have made more sense and he could have earned a better return. I.e. 50 Lakhs instead of Rs. 8,535.29/-. Hence to make good investment choices one must make informed decisions.
Course on Financial Management