An overview of capital investment

Résumé du document

?Investment decision' is the process whereby resources are allocated in organizations, in anticipation of future gain (as defined in Butler, Davies, Pike and Sharp, 1993). Many people in many organizations spend a great deal of their time in making decisions about capital investment. Because capital investment decisions pose problems for decision makers due to the uncertainty about future benefits (" the future is never known with certainty"), many scientists are now involved in developing techniques, which help the decision-makers. Decision-makers aim at finding an optimal solution to their problems, within a model, which is called the decision effectiveness model, (in Butler, Davies, Pike and Sharp, 1993).

Extraits

[...] Project implementation It represents the task of the project manager to supervise the physical construction or installation of capital assets. From this perspective it is required a team approach including engineering aspect. The importance of this step is to reduce the need for post audit. Post audit After the project has run a significant part of its life, post audit has less potential to correct problems in current projects than it has to improve future decision-making. The process is illustrated in Figure4. [...]

[...] Furthermore, it explains the motivation behind capital investment decision making. References Bierman, H., Smidt, S. (1993), The capital budgeting decision : economic analysis of investment projects, 7th ed. - New York : Macmillan; London; Collier Macmillan. Butler, R., Davies, L., Pike, R., Sharp, J. (1993). Strategic investment decisions: theory, practice and process, Routlege. Northcott, D. (1995), Capital Investment: Decision-Making, Dryden Press, London. [...]

[...] 0Q1:the quantity of internally funds available for investment during the current period 1. In figure 2.1 some profitable investments are at cost equal to the borrowing rate could not be internally funded In figure 2.1 in this case the internally fund are enough to allow the firm to undertake some investment which would be profitable when the firm will estimate the lending rate of interest In figure 2.1 internally fund s are sufficient to a accept all investments with positive present value but after evaluating the borrowing rate the funds are not available to undertake all the investments. [...]

[...] However senior managers can bring low-level managers to think in cooperation about investment goals. Another strategy is promotions policies and to reward them. (Butler, Davies, Pike and Sharp, 1993) Capital budgeting describe as a game where control procedures, accounting system, performance measurement and are exploited where possible manipulated. According to the same authors effective planning strategy is a way to achieve congruence and minimise dysfunctional behaviour by planning long term objectives based on short term accounting performance measures. This document provides definitions and techniques used in capital investment decision making. [...]

[...] The intersection of these two curves is the optimal capital budget. The following is a common way in which firms classify capital expenditure projects: Replacement projects: the optimal strategy is to spend the capital in reasonable way realising the objective set by the decision maker (minimising the expenses or maximising the profits. In general the replacement policies deal with items with different sizes. The literature review of capital replacement modelling and fleet size problem is discussed in details Cost reduction projects Safety/ environmental projects Expansion projects We interested in capital replacement our objective is to define the projects that should be executed in order to maximise the profit over the planning horizon at minimum cost Planning horizon? [...]