Question

As a manager, based on your research, how would you decide on the appropriate capital investments for your company?

Answer 1

As a manager, based on your research, how would you decide on the appropriate capital investments for your company?

Answer:

Capital investment decisions aim includes allotting the capital investment funds of the firm in the most effective manner to make sure that the returns are the best possible returns. Assessing projects as well as the allocation of the capital depends on the project requirements are some of the most crucial capital investment decisions aspects.

Capital investment decisions also can be called ‘capital budgeting’ in financial terms.There might be many different criteria’s for choosing the appropriate and right capital investment decision. For e.g., a company might stress on projects that assure for prompt returns while a few other companies might assert on projects which ensure for a growth in the long term. The important aim of capital investment decision is increasing the firms’ value by taking on a good project at the perfect time.

Manager should focus on the following points:

An understanding of the importance of capital budgeting in marketing decision making

· An explanation of the different types of investment project

· An introduction to the economic evaluation of investment proposals

· The importance of the concept and calculation of net present value and internal rate of return in decision making

· The advantages and disadvantages of the payback method as a technique for initial screening of two or more competing projects

The aim of a business while making capital investment decisions is maximising the wealth of the shareholder by acquiring assets and yielding profit and to be able to do this, as the owner of your business, you should to be able to find out and determine as to what projects of capital investment would yield a cash flow which is positive and when there are constrained resources, as they generally are in case of start-up or small business or usually for most of the businesses that are facing the credit-crunch, rate the projects in the bases of priority depending on the kind of value they generate.

The process of making a capital investment decision involves these steps:

• Identification of a project

• Definition of a project and screening

• Analysing and accepting

• Implementation

• Monitoring

• Post audit

Hence ,the company ought to decide as to which of the capital investments that are given, would ensure the maximum value to their business and thus they can make their capital investment decision.

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