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3 Cards in this Set
- Front
- Back
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Capital Investment |
This is concerned with the type of mix of fixed assets employed by a firm.
When a fixed asset is due to be replaced a decision has to be taken as to which of several competing assets to purchase.
When a business is planning for expansion, investment decisions ate usually taken by top management. These decisions must be fully analysed as they result in : *Large sums of money *The quality of the decision taken affects the profitability and liquidity of the firm for several years [Significant period between the outlay ( the amount invested) & the receipts of benefits] *Having purchased an item of fixed asset or embarked on along term project, the decision is usually irreversible. To terminate such decision can prove very costly. * There is increased risks and uncertainty as forecasts become less reliable the further it extends into the future. |
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Managers must consider: |
* Project's initial cost ( outlay) * Projects estimated life * Amount & timing of estimated cash flows * Any additional working capital requirement during the projects * Inflation * Economic changes * Political Changes |
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How many capital budgeting techniques are there? |
There are two. Non-Discounting Techniques Discounting Techniques |
