MBA7001 Explain the meaning of the above statement clearly stating the meaning and the importance of capital investment decision: Accounting for Decision Makers Assignment, CMU, SRL

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A.   “Capital Investment Decision is probably the most important decision for an organization”. 

i)     Explain the meaning of the above statement clearly stating the meaning and the importance of capital investment decisions. What are the other key finance decisions related to capital investment decisions?

ii)    ABC Company is evaluating a Capital Project and the following estimates have been done by the evaluation team on the same. 

The initial investment cost of the project is Rs. 400 million and the estimated net cash inflows for the project is Rs. 100 million per year for the next five years. According to the current economic condition and the level of risk involved in the project, it is considered that the required rate of return on the investment should be at least 15% per annum. 

Since the project is expected to generate net cash inflows greater than the initial investment cost, senior management has decided to accept the project. 

Using the appropriate capital investment evaluation techniques, critically explain the factors that should be considered in deciding the acceptance of this project. Use the relevant calculations as appropriate.

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