Page 331 - F2 - MA Integrated Workbook STUDENT 2018-19

Capital budgeting

The capital investment process

Capital investment decisions normally represent the most important decisions that an
organisation makes. They are normally high cost and long-term.

Examples of capital decisions:

 replacement of assets

 cost-reduction schemes

 new product/service developments

 product/service expansions.

To appraise a potential capital project:

 Estimate the costs and benefits from the investment

 Select an appraisal method and use it to assess if the investment is financially
worthwhile

 Decide whether or not to go ahead with the project

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