Summary Capital investment decisions

Capital expenditure relates to an investment project for long-lived assets. The appropriate capital expenditure on a project should include all costs, such as planning fees, installation costs and any initial operator training costs.

The need for capital expenditure may arise when commencing a business, expanding a business or replacing assets. In selecting appropriate projects, an organization should consider not only whether cash inflows exceed cash outflows, but also the timing of the cash flows, interest charges incurred by raising finance to support the project, and the loss of alter-native investment opportunities.