Capital investment decision is the method of taking decision on
long-term investment options involving huge capital expenditure. It
is the investment decision on fixed assets or capital
expenditure.
Objectives of capital
investment decisions
- To find out the profitable capital expenditure
: Capital investment decisions using various techniques helps the
company to find out the profitable investment from various
investment proposals.
- To know whether the replacement of any existing fixed
assets brings profits : Replacement of fixed assets are
done to increase the profitability. Capital budgeting decisions
helps to identify whether this replacement is profitable or
not.
- To decide whether a specified project is to be selected
or not : Capital investment decisions are on the selection
of the project proposals.
- To evaluate the merits of each proposal to decide which
project is best : Evaluation of various project appraisals
throws light on the profitable projects. It is helpful to find out
the best project.
- To control the capital expenditure : The
capital expenditure involves huge amount of money. So it is
essential to control such expenditure. Investing in only profitable
projects is the only way to control the expenditure. Capital
investment decisions helps for it.
- To find the right source of fund : Selection
of right source of fund for the right project proposal is the
another objective of the capital investment decisions. Right source
of fund ensures control of cost of financing projects.
These are the main objectives of capital investment
decisions.