Agree or Disagree, and Why?

Investments decisions involving the acquisition of long-lived assets are often referredto asCapitalExpenditures Decisionsbecause they require that capital company funds be expended to acquire additional resources. Capital Expenditure is also known as the money spent by a business or organization on purchasing or maintainingfixed assets. Some examples are; land buildings, types of equipment, furniture, and fixtures).

The next step is calledCapital Budgeting;this is where the investment decision is analyzed. Most firms/businessescarefully analyzethe potential project in which they may invest. This process is used to thequantitativeview of each proposed fixed asses investment, thereby giving a rational basis for making a judgment.

Net Present Valuealso know as (NPV); their approach is first to identify the amount and time of each cash flow associated with a potential investment. The second step is to equate or discountthe cash flow to their present value using a required rate of return. Lastly, the finalstep is to evaluate the NPV. How is that figured out? First is, to sum up, the present valueof all cash flows (inflow & outflow) that will give you the net present value of the investment. Then from there, you can either figure out if it ispositiveor negative in other words, is the risk worth the reward or not continuewith the proposedproject or purchase.

Chapter 9, Ozzy