Do capital projects always have to be able to pay for themselves over time? Or are there situations where a capital item may actually be a cost center rather than a revenue producing center? Would it make sense to spend money that is going to cost more money over time?
A capital project is usually taken by the company after considering all the factors like initial cash investment, projected cash flows, useful life and salvage value . Each project so selected must prove to be able to pay for itself with time and at the same time must contribute in increasing the production, cutting costs or adding corporate benefits to the entity.After all the evaluation and analysis if there stands a fair probability of earning profit from the capital project than the entity opts for that project. This implies that the capital projects are adopted when they always stand a chance to be able to pay for themselves over time.
A cost center is a division that incurs costs but does not generate enough revenue to cover the cost. whereas a revenue center is a division that generates enough revenues by selling the products or by providing services. Even after evaluating all the factors associated with the project selection there are situations which may turn up negative and hostile for the project. In such a situation the capital item may actually be a cost center rather than a revenue producing center. The expected investment of $100000 increases to $200000 due to breakdown of machinery ; this will reduce the expected profit calculated or the Net Present Value of the project and the company may not find the project feasible to be taken as the capital item will turn into a cost center rather than a revenue producing center.
It does not makes sense to spend money that is going to cost more money over time as it will not be in benefit of the company. Instead of earning profit it will be a loss making venture.
Do capital projects always have to be able to pay for themselves over time? Or are...
The Question IS Which of these projects will actually be invested in? Which of the ones will people actually do? Investment and real interest rates The article is about how real interest rates drive planned investment. Think about the function investment as a function of real interest rates. Planned investment as a function of real interest rates. Talking about real interest rates, I'm really just talking about nominal interest rates factoring out or discounting what's going on with inflation. There...
DCF analysis doesn't always lead to proper capital budgeting decisions because capital budgeting projects are not-Select-investments like stocks and bonds. Managers can often take positive actions after the investment has been made to alter a project's cash flows. These opportunities are real options that offer the right but not the obligation to take some future action. Types of real options include abandonment, investment timing, expansion, output flexibility, and input flexibility. The existence of options can -Select projects' expected profitability,-Select their...
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Which of the following is not one of the more common strategic benefits provided by capital investment projects? Multiple Choice Improving product quality Reducing the number of short-term (i.e., operational) decisions that management must make. Reducing manufacturing cycle time. Being able to deliver a product that competitors cannot (ie, product differentiation). Providing significant cost reductions, in terms of production and/or marketing costs. When ranking two mutually exclusive investments with different initial amounts but approximately the same useful life, and assuming...
6. Within-firm risk and beta risk Understanding risks that affect projects and the impact of risk consideration WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that it thinks will create value for its stockholders. Consequently, the risk level of the company's projects tends to vary a great deal from project to project If WSP Inc. does not risk-adjust its discount rate for specific projects properly, which of the following is likely...
pick 1 of the five things you should know about capital gains
tax, and give a pro or con point of view on the artical.
Paragraph Styles 6 5 Things You Should Know about Capital Gains Tax Updated for Tax Year 2019 OVERVIEW A capital gain occurs when you sell something for more than you spent to acquire it. This happens a lot with investments, but it also applies to personal property, such as a car. Every taxpayer should understand...
mu WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that it thinks will create value for its stockholders. Consequently, the risk level of the company's projects tends to vary a great deal from project to project. for special IF WSP Inc. does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. operty, which of ti The firm...
1. The 'snowball' metaphor used in this course best represents which of the following concepts: Select one: a. Your bank account balance at the end of the month. b. Total income less expenses each month. c. Total personal and investment income received each month. d. The amount by which your bank balance increases each month. 2. Which of the following situations is MOST consistent with the concept of 'save to invest'? Select one: a. You start saving $100 a month...
1. The 'snowball' metaphor used in this course best represents which of the following concepts: Select one: a. Your bank account balance at the end of the month. b. Total income less expenses each month. c. Total personal and investment income received each month. d. The amount by which your bank balance increases each month. 2. Which of the following situations is MOST consistent with the concept of 'save to invest'? Select one: a. You start saving $100 a month...
1. The 'snowball' metaphor used in this course best represents which of the following concepts: Select one: a. Your bank account balance at the end of the month. b. Total income less expenses each month. c. Total personal and investment income received each month. d. The amount by which your bank balance increases each month. 2. Which of the following situations is MOST consistent with the concept of 'save to invest'? Select one: a. You start saving $100 a month...