Capital Investment Decisions
Capital investment involves putting funds in a firm which would produce better returns. ( Flyvbjerg, B. & Rothengatter, W. 2003).Generally when making investment decisions, one need to put into consideration the amount of money or rather returns which will be brought in the company.
Firstly, the time that will be taken by the investment to bring back the money should be considered. (Tiger, I.1980).This is always known as payback period. It is always very convenient to choose an investment which will take the shortest time possible to bring back the amount of investment incurred.
Secondly, one needs to consider the time value of money. The value of money today will not be the same value in ten years to come. (Flyvbjerg, B. & Rothengatter, W. 2003). In investment, money can be used to make more money in the business. Therefore, the earlier you receive money the better chance a company stands to make wealth.
The next decision to be made is a bout the inflation. Money can loose its value by time. When there is a lot of money in supply, money will loose its value. (Tiger, I.1980).Hence, one needs to be paid for the declining value of money. Therefore one needs to look for an investment opportunity which has got high rate of interest.
In conclusion, there is a lot of information which should be taken before making any investment. One is known as the net present value of money, which is the value of money at the time of investment. (Flyvbjerg, B. & Rothengatter, W. 2003). This is very important in that it will be used to compare the future value of money. The next data is the internal rate of return which depicts how fast the investment is paying back.
Flyvbjerg, B. & Rothengatter, W. (2003). Megaprojects and Risk: Cambridge: Cambridge University Press
Tiger, I. (1980). Too much invested to Quit. New York: Pergamon Press