Page 6 - PowerPoint Presentation
P. 6
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.
6
