Investment Appraisal free essay sample

What are some benefits from Investing? ? Savings because assets used currently will no longer be used o Savings in staff cost o Saving in other operating costs Revenue benefits because of improvement / enhancements o More sales revenue o More efficient system o Savings in staff time Inflow from sale of currently in use assets Intangible benefit o Customer satisfaction o Improve staff morale o Better decision making ? ? ? How can investments be categorised? Investments can be categorised into Capital Expenditure and Revenue Expenditure. What is Capital Expenditure? Capital expenditure is expenditure which results in the acquisition of non-current assets or an improvement in the earning capacity of non-current assets. What is Revenue Expenditure? Revenue expenditure is expenditure which results in maintain the existing earning capacity of noncurrent assets. It also includes expenditure related to selling and distribution expenses, administration expenses and finance charges. What is involved in investments in Non-current Assets? Investments in Non-current Assets involve a significant elapse of time i. We will write a custom essay sample on Investment Appraisal or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page . the time funds are committed to acquiring the non-current to the recoupment of the investment will be long. What is involved in investments in Working Capital? Investments in working capital involve funds invested in resources such as, inventory, before it can be recovered from sales of the finished product or service. The funds are only committed for a short period of time. How do the overriding factors in Investment decisions differ in the Commercial Sector and the Notfor-Profit Organisation? The commercial sector investment decisions are generally based on financial considerations alone whereas with not-for-profit organisations relatively few organisations’ capital investments are made with the intention of earning a financial return the overriding factors are social costs and social benefits of the investment. What is Capital Budgeting? Capital budgeting is the process of identify, analysing and selecting investment projects whose returns are expected to extend beyond one year. What is the Capital Budget? The capital budget contains the expenditure required to cover capital projects already underway and those it is anticipated will start in the next possibly three to five years. Note: Budget limits or constraints might be imposed internally or externally. Internal constraints are often imposed when managerial resources are limited, this known as soft capital rationing. External constraints are often imposed by external limits either because of scarcity of finance, high financing costs or restrictions on the amount of external financing, this is known as hard capital rationing. Origination of proposal the origination of the proposal can come either from mechanisms the entity has put in place to scan the environment for investment opportunities; technological change/developments; or those working in technical positions. Project screening each project must be subjected to detailed screening. Only if a project passes this initial screening will more detailed financial analysis begin. Analysis and acceptance this step involves carrying out financial analysis of the project and comparing that to predetermined acceptance criteria and also considering the project in light of the capital budget for the current and future operating periods. Monitoring and review this step involves project control i. e. ensuring that capital spending does not exceed the amount authorised, the implementation of the project is not delayed, and the anticipated benefits are eventually obtained.