This creates a need for the capital projects to be well analysed and all details to be well understood to be able to evaluate the effects on the overall value of the firm. As seen in the definition, the capital projects help develop and increase the fixed assets of a company. This in turn helps the company earn higher levels of profits. The assets when fully utilised can be helpful in improving the overall productivity and output of the firm as well (Constantini, 2006). The main aim or objective of any capital project that is undertaken by a firm is to help the company’s assets to either be renewed or even to help replace the assets, to allow better performance and output.
The affects of the capital decisions and investments have a two fold affect. Firstly they affect the operations of the firm. Secondly they have a great impact on the share prices of the firm as well. The decisions made have a strong impact and can make the stock prices rise or fall to a great extent. Hence the capital projects require to be very carefully considered and implemented as the affects of this can lead to very high profits while an error in this can be catastrophic for the company as well.
It is also essential that the plans and investments that are made are in line with the strategic plans of the firms. For a business to invest in a capital project, it is essential to consider the project as a new business start up and the work on this very carefully as it involves, increasing the capacity of the firm, operations scales and also the investments on assets. As explained earlier, the capital projects lead to an increase in the fixed assets of the firm, which in turn has an impact on the scale of operations which thereby leads to increased operating profits for the firm. This complete process has an affect on the overall value of the firm. Hence this proves that the capital projects have a very