Types of Capital Expense Decisions
Types of Capital Investment Decisions
Organizations often are faced with the opportunity (or need) to invest in assets or perhaps projects that represent long lasting commitments. Fresh production devices, new plant life, new equipment, and new product development will be examples of resources and jobs that in shape this category. Generally, many alternatives are available.
For example , an organization may be up against the decision of whether or not to invest in a fresh plant, or perhaps whether to invest in a flexible developing system or to continue with an existing traditional manufacturing program. These long-range decisions happen to be examples of capital investment decisions. Capital investment decisions are concerned with the technique of planning, establishing goals and priorities, organizing financing, and using particular criteria to choose long-term resources. Because capital investment decisions place a lot of solutions at risk to get long periods of time and simultaneously affect the future advancement the company, they are one of the most important decisions made by managers.
Every single organization has limited resources, which should be used to maintain or perhaps enhance it is long run earnings. Poor capital investment decisions can be devastating. For example , a failure to invest in computerized manufacturing when other rivals do so may result in significant losses in market share due to inability to compete on the basis of quality, expense, and delivery time. Competition with more modern facilities may well produce more output for lower cost and higher quality. Hence, making the proper capital purchase decisions is totally essential for long term survival.
The process of making capital expenditure decisions generally is known as capital budgeting.
Two types of capital budgeting projects are:
вЂўIndependent projects and;
вЂўMutually distinctive projects.
Independent assignments are assignments that, in the event that accepted or perhaps rejected, will not affect the money flows of other jobs. The second kind of...