CHAPTER 8 . MAKING CAPITAL INVESTMENT DECISIONS. Answers to Concept Questions . 1. In this context, an opportunity cost refers to the value of an asset or other input that will be used in a
A company is considering investing in a machine with a capital cost of £300,000 with a useful life of 4 years. Annual running costs are expected to amount to £276,000 including straight line depreciation of £70,000 per annum.
The capital budget must be built around the objective of making purchases that are timed with growth initiatives. For example, if you anticipate increasing sales by 50 percent over the next year, your capital budget must include money for assets that will help you produce or acquire more products. Capital Rationing. Capital rationing occurs when a firm or division has limited resources. Soft rationing – the limited resources are temporary, often self-imposed. Hard rationing – capital will never be available for this project. The profitability index is a useful tool when faced with soft rationing. 9.
A CASE STUDY OF CAPITAL INVESTMENT DECISION-MAKING: EXPLORING PRACTICE AND (STRUCTURATION) THEORY Introduction In 1975 King asked “is the emphasis of capital budgeting misplaced?” His was an early suggestion that conceptions of capital investment decision-making were too narrow in their focus