13-GrC421_CapitalInvestment

13-GrC421_CapitalInvestment - 1 ment for Print and Digital...

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Unformatted text preview: 1 ment for Print and Digital Media ersity Investing in Equipment aka Capital Acquisitions INVESTMENTS An investment is an exposure of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is GrC 421 Production Managem California Polytechnic State Unive expected to generate. ment for Print and Digital Media ersity Investing in Equipment FINANCIAL EVALUATION OF INVESTMENTS • Evaluations are a necessity for banks, investors, and other providers of funds. • Also prudent for good management decisions. • Forces management to consider the long-term consequences of making a given investment. GrC 421 Production Managem California Polytechnic State Unive • Careful analysis will still not guarantee success, but will at least lead to the investment alternative with the best chances of success. ent for Print and Digital Media ersity Investing in Equipment TECHNIQUES FOR FINANCIAL ANALYSIS • Return on Investment (ROI) • Payback Method • Discounted Cash Flow Method • Future Value • Prese nt Value GrC 421 Production Managem California Polytechnic State Unive • Net Present Value • Internal Rate of Return Method • Cost of Capital • Capital Rationing • Leasing ent for Print and Digital Media ersity Investing in Equipment TECHNIQUES FOR FINANCIAL ANALYSIS • There is no one “best” method for evaluating the financial aspects of an investment. • Each of the various techniques have certain advantages. • In practice, two or more of the methods may be employed. • The final choice is a reasoned judgment supported by GrC 421 Production Managem California Polytechnic State Unive quantitative and qualitative factors that were generated through careful and extensive analysis over a period of time. ment for Print and Digital Media ersity Return On Investment (ROI) RETURN-ON-INVESTMENT (ROI) A financial forecasting tool that assists the business manager in evaluating whether a proposed investment opportunity is worthwhile within the context of the company’s business objectives and financial constraints. When is ROI analyzed? GrC 421 Production Managem California Polytechnic State Unive When is ROI analyzed?- When major $$$ is involved- When financial commitment is greater than one year- When cash flow benefits are greater than one year- When strategic direction of company may be affected by investment- When company’s prosperity may be significantly affected if the purchase is made or not made ment for Print and Digital Media ersity Return On Investment (ROI) Why analyze ROI?- Assistance in decision making process (Forecasting, strategic planning, risk analysis)- Decision is generally irreversible- There is significant risk or uncertainty involved- Financial exposure. Banks will not lend money unless they GrC 421 Production Managem California Polytechnic State Unive are convinced of the merits of the proposed investment 2 ment for Print and Digital Media...
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13-GrC421_CapitalInvestment - 1 ment for Print and Digital...

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