Capital Investment Decisions

Question 0

4 Capital investment decisions characteristics are…

Answer 0

Involve large sums of money
Long term expenditure
Difficult to reserve
High risk

Question 1

What is capital investment decision making?

Answer 1

Long term business decisions involving commitment to large sums of money.
Eg new store
New machinery 
New technology
New product
Take over business

Question 2

6 Examples of qualitative impacts of capital decisions are..

Answer 2

Employee moral
Effect other areas of business
Environmental impact
Effect on future opportunities
Effect on business's image
Change to the quality of product

Question 3

3 factors affecting capital invest decisions

Answer 3

Customer preference
Competition
Government regulation

Question 4

Why do we use cash flows as an Indicator ?

Answer 4

Cash Inflows and outflows are better as they truly determine value of investments and the time value of money.

Question 5

What is the time value of money?

Answer 5

Concept that says money today does not have same value in the future due to inflation and interest rates.

Question 6

What is the payback period?

Answer 6

The time it takes for the cash flow from investment to exceed the cost of investment.
Shorter the better

Question 7

Explain the rate of return on average investment ? And the rule

Answer 7

The profitability of an investment expressed as the average profit divide by average investment.
Highest return above a predetermined benchmark is the one that should be chosen.

Question 8

Explain the net present value. And the rule.

Answer 8

The figure that results from discounting all the cash inflows and outflows of a project at the minimum discount rate and then adding and subtracting resulting present values.
Positive should be taken
Negative shouldn’t