How ROI would help managers in making the capital investment decision?

Expert Solution

The capital investment process is the method of analyzing and selecting long term investments which are in line with the goal of companies wealth maximization.

The capital investment process decisions are important, vital and significant business decisions because:

1.substantial expenditure involved.

2. long period for the project.

3. irreversibility of decisions.

4. The complexity involved in decision making.

The process includes:

1. Hunting for investment opportunities.

2. Investment analysis and valuation.

3. Due diligence of the investment opportunity.

4. Approval of investment.

5. Closing the deal.

Return of Investment acts as a Key metric to determine whether to accept or rejecte the capital investment. It plays a role in Approval of investment

Return on Investment = (present value of all cash inflows/present value of all cash outflows)*100%

Return of Investment above 100% is desirable and can be accepted or Approved.

jeff jeffy answered 1 year ago

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How ROI would help managers in making the capital investment decision?

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