Page 32 - 5.2 i. Manac Finance ITC Summarised Notes
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Cost of Capital & Capital Investment Appraisal
Introduction
• Capital investment appraisals are long-term decisions,
where it will take several years to earn a return on the
capital investment made.
• The topic of capital investment appraisals integrates many
other management accounting topics (including strategy,
cost of capital and relevant costing), and frequently serves
as the precursor to the financing decision.
• It further integrates with the subject of taxation.
• The cost of capital is important as it directly affects the
choice of investments.
• A too low cost of capital could lead to the acceptance of
investments earning insufficient returns; whereas a too high
cost of capital could lead to not accepting profitable
investments.
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