Question

In: Accounting

What do you mean by Capital Investment? Suppose you are going to start a new project;...

What do you mean by Capital Investment? Suppose you are going to start a new project; which investment appraisal method is most suitable for your project and why? Explain.

Solutions

Expert Solution

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

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

  • 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.
  • 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.

There are various investment appraisal methods for the capital investment such as

  • Net present value
  • Accounting rate of return
  • Internal rate of return
  • Modified internal rate of return
  • Adjusted present value
  • Profitability index
  • Equivalent annuity
  • Pay back period
  • Discounted pay back period

In order ,Capital investment appraisal factors are selected based on the priorities of stakeholders and decision makers.

Perhaps if I would ready to start a new project in I would consider the the accounting net present value for the investment of the project as their deals with the payback off the capital and running the business


Related Solutions

Capital budgeting The company is going to analyse a new investment project, which has the following...
Capital budgeting The company is going to analyse a new investment project, which has the following characteristics: Unit price                                                                $5.00 Annual unit sales                                                   40,000 Variable cost per unit                                           $2.5 Investment into new machinery (t=0)              $400,000 Investment in working capital                           $50,000               (fully recovered at the end of project) Project life                                                              6 years Annual depreciation                                             $60,000 Market value of machinery (t=6)                       80,000 Tax rate                                                                    40 %                     (the same for profits and capital...
Suppose, you are going to start a new business which is a Vegan Food Restaurant in...
Suppose, you are going to start a new business which is a Vegan Food Restaurant in new work. Funding Decision: After analysing your internal capital sources, you find out that you need to arrange more funds. Depending on your size of business and targeted market, what external sources of funds would you consider ? Please explain. Product/Service selection & design: what factors would you consider while selecting the type of food items for your store. What products and services would...
What do you mean by Budget?  Suppose you are going to enjoy your summer holidays in France....
What do you mean by Budget?  Suppose you are going to enjoy your summer holidays in France. Make an expected budget keeping in mind all of your requirements.
Suppose you are going to start a new business, do the projected following financial statements, and analyse them in your own words
Suppose you are going to start a new business, do the projected following financial statements, and analyse them in your own words: Manufacturing AccountTrading AccountProfit & Loss AccountA break-even analysis From your accounts, you find out the Manufacturing costGross marginNet marginVariable costFixed costmargin of safetyContribution MarginBreak-even unitBreak-even revenueTargeted operating profit before and after tax Then, (1) Give a background description of your business.(2) Analyse the importance of each of the above accounts.(3) Identify the essential elements of cost-volume –profit analysis.(4)...
Q.4. What do you mean by Budget? Suppose you are going to enjoy your summer holidays...
Q.4. What do you mean by Budget? Suppose you are going to enjoy your summer holidays in France. Make an expected budget keeping in mind all of your requirements.                                                                  
Zuti has a capital investment project that could start immediately. The project will require a machine...
Zuti has a capital investment project that could start immediately. The project will require a machine costing $2.4 million. The total discounted value now of the cash inflows from the project will be either $2.6 million or $1.9 million with equal probability. The risk-free rate is 3%. Instead of starting immediately the project could be delayed until one year from now to gain more market information. Its total discounted cash inflows at that time will be known as either $2.6...
Zuti has a capital investment project that could start immediately. The project will require a machine...
Zuti has a capital investment project that could start immediately. The project will require a machine costing $2.4 million. The total discounted value now of the cash inflows from the project will be either $2.6 million or $1.9 million with equal probability. The risk-free rate is 3%. Instead of starting immediately the project could be delayed until one year from now to gain more market information. Its total discounted cash inflows at that time will be known as either $2.6...
Zuti has a capital investment project that could start immediately. The project will require a machine...
Zuti has a capital investment project that could start immediately. The project will require a machine costing $2.4 million. The total discounted value now of the cash inflows from the project will be either $2.6 million or $1.9 million with equal probability. The risk-free rate is 3%. Instead of starting immediately the project could be delayed until one year from now to gain more market information. Its total discounted cash inflows at that time will be known as either $2.6...
Zuti has a capital investment project that could start immediately. The project will require a machine...
Zuti has a capital investment project that could start immediately. The project will require a machine costing $2.4 million. The total discounted value now of the cash inflows from the project will be either $2.6 million or $1.9 million with equal probability. The risk-free rate is 3%. Instead of starting immediately the project could be delayed until one year from now to gain more market information. Its total discounted cash inflows at that time will be known as either $2.6...
when you start business what are the project risks and what can you do to reduce...
when you start business what are the project risks and what can you do to reduce them?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT