Question

Describe the six types of capital expenditure proposals and relate how you would translate any of these for personal use at home.

Answer 1

Capital expenditure is a type of expense used for multiple years by any firm or individual.

The six types of CapEx are as follows

1. Building or Property - Any purchase of building or property for setting up an office or factory is a capital expenditure. Because it is going to be used for multiple years.

At home also, an individual buys a home or property like a farm or parking space. All these are going to be used by the individual for many years. Hence, the purchase of a building or property by an individual is also a CapEx

1. Software Upgrades - It is a significant cost to many companies especially IT firms. However, with the rise of automation, many firms, especially in the banking industry, have started investing heavily on software.

In household to there is a cost related to software purchase and upgrades. The most basic example of software upgrade is Windows, Android or IOS versions which we upgrade.

1. Vehicles - For firms especially in transports. With increase in business volume, the number of vehicles needed also increases. For other industries too purchase of a vehicle is CapEx but not as significant as this industry.

In a household, the most expensive thing after the house is generally a vehicle. It is used for more than one year and hence considered as CapEx

1. Upgrade to an Equipment - As we know with time the equipment and machinery get obsolete or we get new equipment which gives us more savings. Hence, Upgrade to equipment is an important CapEx across industries

At home, there are numerous examples from washing machine to the TV of an equipment upgrade. All of these are to be at par with the current trend and are used for multiple years

1. Intangible Assets - These are assets which can't be touched and not appeared physically like license or patent. They are important in industries like pharma etc

At home, we have many licenses like Passport, or driving license and Visa if want to go abroad which comes under this category

1. Computer Equipment - All equipment related to computer like a laptop, desktop etc comes in this category. At present time this is a necessity in almost all industry and thus make an important subset of CapEx

At home also, today everyone needs a personal computer and thus it covers a good portion of household CapEx