Capital Investment Decisions

Capital Investment Decisions

Describe the elements involved in capital investment calculations. Can you think of any additional elements beyond the numeric ones described in the chapter that should be considered?

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  • Any written explanations should use complete sentences, and appropriate grammar, punctuation, spelling and word usage.
  • Your initial post should be at 200-300 words, formatted and cited in current APA style with support from at least 2 academic sources. Your initial post is worth 8 points.
  • You should respond to at least two of your peers by extending, refuting/correcting, or adding additional nuance to their posts. Your reply posts are worth 2 points (1 point per response.)
  • All replies must be constructive and use literature where possible.

Post 1

When considering capital investments an organization has a lot to consider rather than just return on investment.  Some consideration is how investment projects effect the company internally and externally in the marketplace. Considering if the investment aligns with long term goals and strategy of the organization.  The undertaking of building a new plant or investing in buying a competing company involves all talents within the organization.

Financially or numerically speaking, the investment must meet the organization’s desired internal rate of return (IRR).  There is no set benchmark return for investment for organizations, this arbitrary number is determined by the executive team.  The time frame for return (payback) as well cash inflows and outflows are easily attained for a company to either accept or reject an investment. Net present value (NPV) can also assist on whether investment capital is best left in an investment account collecting interest versus put to work on a capital investment project.

Payback analysis is very simplistic as it takes total outflow of capital investment and is divided by average yearly cash inflows generated by the investment to deliver a time to recoup the investment.

Regardless of which analysis an organization uses, the decision to invest must be cautiously considered to how it will effect an organization, employees, and reputation currently and in the future.  Ideally, businesses would pursue any and all projects and opportunities that enhance shareholder value. (Kenton, 2020).

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