The main aim of shareholder holders when making or deciding on capital investment is wealth maximization by purchasing non current asset which can yield profits. The managers of organization are supposed to be in a position to evaluate a project before committing their funds in it to know which venture would result to a positive cash flow when there are constraints in resources. So project investment capital is a sensitive issue as it determines the firm viability.
There are several sources of funds available to a firm and they include banks, equity investors through issue of shares, financial institutions, angel investors, gentlemen in dark glasses, shy locks and venture capital. Capital investment is not only meant for resources or long term asset but they can also be used for purposes of working capital.
Decisions to be made here are known as capital investment. This decision aims at allocating the firms funds to most profitable investment. Evaluating a project and committing fund on it is considered to crucial in capital investment.
There exist many methods which facilitate choosing of right and appropriate investment or project to invest in. Many companies will stress for projects with prompt returns, this is actually the kind of projects the managers will go for, but this does not mean it is the shareholders goal.
Successful companies have a department for development and research, the department consist of a committee. The committee is composed of marketing, finance, technology and several other executives whose responsibility is to create new ideas, improve company services and product and to find new markets. Development and research usually cost a company. Successful companies will aim at achieving the best investment portfolio that will add value to organizations.
To evaluate a projects value there exist some methods that can be applied and they include interior rate of return, period of payback that is when the project will be able to return back the initial capital outlay. And lastly the present value, that is the future cash flow accruing to the new project. These cash flow are discounted back to present value and compared to the present value of the old asset.
Before a firm commits it hard earned money in any project, it should first carry out investment appraisal. The appraisal of projects has two distinct features that is evaluating the amount of return expected from the expenditure made and estimation of additional future benefits and cost over the entire project useful life.
The techniques for evaluating cost of finance include weighted average and marginal cost of capital. Weighted average can be utilized to discount investment rate given that following assumptions exist.
To evaluate the viability of the new machine a firm uses the projected cash flow from the new machine, they are discounted to get their net present value the resultant present value is compared against the present value of old machinery, if the present value of new machinery is bigger than the present value of old asset then the firm can go ahead to commit their funds.
There are several sources of funds available to a firm and they include banks, equity investors through issue of shares, financial institutions, angel investors, gentlemen in dark glasses, shy locks and venture capital. Capital investment is not only meant for resources or long term asset but they can also be used for purposes of working capital.
Decisions to be made here are known as capital investment. This decision aims at allocating the firms funds to most profitable investment. Evaluating a project and committing fund on it is considered to crucial in capital investment.
There exist many methods which facilitate choosing of right and appropriate investment or project to invest in. Many companies will stress for projects with prompt returns, this is actually the kind of projects the managers will go for, but this does not mean it is the shareholders goal.
Successful companies have a department for development and research, the department consist of a committee. The committee is composed of marketing, finance, technology and several other executives whose responsibility is to create new ideas, improve company services and product and to find new markets. Development and research usually cost a company. Successful companies will aim at achieving the best investment portfolio that will add value to organizations.
To evaluate a projects value there exist some methods that can be applied and they include interior rate of return, period of payback that is when the project will be able to return back the initial capital outlay. And lastly the present value, that is the future cash flow accruing to the new project. These cash flow are discounted back to present value and compared to the present value of the old asset.
Before a firm commits it hard earned money in any project, it should first carry out investment appraisal. The appraisal of projects has two distinct features that is evaluating the amount of return expected from the expenditure made and estimation of additional future benefits and cost over the entire project useful life.
The techniques for evaluating cost of finance include weighted average and marginal cost of capital. Weighted average can be utilized to discount investment rate given that following assumptions exist.
To evaluate the viability of the new machine a firm uses the projected cash flow from the new machine, they are discounted to get their net present value the resultant present value is compared against the present value of old machinery, if the present value of new machinery is bigger than the present value of old asset then the firm can go ahead to commit their funds.
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