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Reserch Paper - Capital Investments

In: Business and Management

Submitted By aashnasahay
Words 1391
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CAPITAL INVESTMENTS: MODELS USED IN DECISION MAKING Capital investments are long-term investments made by companies to eventually

enhance profitability and shareholder value. Capital investments normally last a company for a number of years, and they take longer periods of time to implement or enhance within an organization. Some examples of capital investments include, but are not limited too: automation in factories (equipment and software), research and development, equipment to improve quality control, software to test productivity measures, etc. These investments include a great deal of labor, capital and time to implement. Since capital investments can be risky, meaning any losses will be large to the organization considering the amount of time and capital involved, organizations have a process to determine what capital investments they should get involved in, and why. Capital investment decisions are concerned with the process of planning, setting

goals and priorities, arranging financing and using certain criteria to select long-term assets. (“Hansen & Mowen,” 2011) Companies may start by listing all the improvements that are to be made to affect profitability in the long run. Since these improvements will consume large amounts of time and capital, it is not feasible for companies to make multiple investments at a time. To assist in deciding which investment to take on first, the company must calculate which will be the most profitable and increase shareholder value. This is done by a process called capital budgeting, which tells the company what

project to start on and when. ("Evaluating business investments," 2012) Looking deeper in the process implemented by organizations to make capital

budgeting decisions, some of the research that should be done first includes - ("Food and agriculture," 2011) • a formulation of long-term goals, a…...

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