Question

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

Answer 1

Some of the factors on which appropriate capital investments are based on are:

1. The capital investment must maximize shareholder wealth and increase the overall value of the firm.

2. It must generate additional revenues for the firm over a long term of period and the recovery period must not be too long.

3. The investments undertaken must align with the long term financial and overall goals of the business.

4. The capital investment decisions must be based on if it requires immediate attention or the investment can be postponed. Investments that require immediate attention must be taken up on priority.

5. Investment decisions must be based on the ability of the company to put in the initial money and the expected rate of return on the project. Analysis through tools such as NPV, IRR must be useful to see if the project will meet the company's expectations.