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Capital Investment Process - Essay Example
Author : xbechtelar
Pages 13 (3263 words)
Capital investment always presents a serious decision for management. The commitment of funds to capital projects gives rise to a management decision problem. Capital investment appraisal theory tries to find the solution of this problem, through the development of techniques allowing to predict the outcome of every investment…
Therefore, it was always implied that despite techniques used to make the future more clear, capital investment decision requires a manager to use intuition.
This study of a Boston Mayflower - a residential social landlord with about 5,000 houses - indicates that more accent must be put on qualitative appraisal techniques. The essay begins with building a theoretical base to get the reader familiar with some basic concepts of capital investment appraisal theory. The second part of the essay is devoted to a step-by-step analysis of the investment project of Boston Mayflower.
This part of the essay is devoted to the description of methods used in the analysis of capital investment. Developed theoretical frameworks include several different techniques of analysis varying mainly in measures of investments. In other words, it is clear that the ultimate goal of every investment is maximisation of owner's wealth; however specific characteristics of every project oblige management to choose carefully and with correspondence to the most vital needs of the business.
The most typical example is the choice between long-term investment project with high return value and short-term project but with lesser return. Although the first development plan will lead to better profits in the end, sometimes a company chooses the second one. ...