Question

Why/how does technological change cause capital investment? and what type of capital investment?

Answer 1

What Is a Capital Investment?

Capital investment is the procurement of money by a company in order to further its business goals and objectives. The term can also refer to a company's acquisition of long-term assets such as real estate, manufacturing plants and machinery.

How Capital Investment Works

Capital investment is a broad term that can be defined in two distinct ways:

1. An individual, a venture capital group or a financial institution may make a capital investment in a business. A sum of money is handed over as a loan, or in return for a promise of repayment or a share of the profits down the road. In this sense of the word, capital means cash.
2. The executives of a company may make a capital investment in the business. They buy long-term assets that will help the company run more efficiently or grow faster. In this sense, capital means physical assets.

In either case, the money for capital investment must come from somewhere. A new company might seek capital investment from any number of sources, including venture capital firms, angel investors and traditional financial institutions. The company uses the capital to further develop and market its products. When a new company goes public, it is acquiring capital investment on a large scale from many investors.

An established company might make a capital investment using its own cash reserves, or seek a loan from a bank. If it is a public company, it might issue a bond in order to finance capital investment.

There is no minimum or maximum capital investment. It can range from less than $100,000 in seed financing for a start-up, to hundreds of millions of dollars for massive projects undertaken by companies in capital-intensive sectors such as mining, utilities and infrastructure.

Capital investment factors are factors affecting the decisions surrounding capital investment projects. Capital investment factors are elements of a project decision, such as cost of capital or the duration of investment, which must be weighed to determine whether an investment should be made, and if so, in what manner the investment is best made in order to maximize utility for the investor.

Capital Investment Factors that Affect Decision-Making

Capital investment factors may take a number of forms. They include:

• The outlook of a company's management team
• How technological changes and advancements may uncover previously unknown opportunities
• How competition may affect the market landscape and potentially change previous assumptions
• Fiscal incentives, such as tax reductions, grants, and subsidies
• The market and changing forecasts (unforeseen changes in local and global markets may render previous assumptions invalid)