4

Making capital investmentdecisions

INTRODUCTION

In this chapter we shall look at how businesses can make decisions involvinginvestments in new plant, machinery, buildings and similar long-term assets. Inmaking these decisions, businesses should be trying to pursue their key financialobjective, which is to maximise the wealth of the owners (shareholders).

Investment appraisal is a very important area for businesses; expensive and far-reaching consequences can flow from bad investment decisions.

LEARNING OUTCOMES

When you have completed this chapter, you should be able to:

l Explain the nature and importance of investment decision making.

l Identify the four main investment appraisal methods found in practice.

l Use each method to reach a decision on a particular investment opportunity.

l Explain the methods used to monitor and control investment projects.

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