Capital Investment Decisions


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Essay #: 060319
Total text length is 4,181 characters (approximately 2.9 pages).

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The beginning:
Capital Investment Decisions
“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 and Mowen 564). Capital investment decisions place large amounts of resources at risk for long periods of time and simultaneously affect the future development of the firm. They are among the most important decisions managers make. Every organization has limited resources, which should be used to maintain or enhance its long-run profitability. Poor capital investment decisions can be disastrous. The inability to compete on the basis of quality, cost, and delivery time can be problematic. Competitors with more modern facilities...
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.....res the time value of money” (Hansen and Mowan 567).
The accounting rate of return is the second commonly used nondiscounting model. This model measures the return on a project in terms of income as opposed to using a project's cash flow. The accounting rate of return is computed by the following formula: Accounting rate of return = Average income/Original investment. Investment can be defined as the original investment or as the average investment. Letting I equal original investment, S equal salvage value, and assuming that investment is uniformly consumed, average investment is defined as follows: Average investment I = (I + S)/2.
Works Cited
Hansen, Don, and Mowen, Maryanne. Managerial Accounting. Mason,
OH: Thomson South-Western, 2007.