What Is Capital Investment And How It Works?

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What Is Capital Investment And How It Works?
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What is a Capital Investment?
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What is a Capital Investment?

• In a nutshell, a capital investment is a sum of
  money a firm lends to the other firm to further
  its business objectives. The term also can refer
  to a company's acquisition of long-term assets
  such as real estate, manufacturing plants, and
  machinery.

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How Do Capital Investments Work?
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How Do Capital Investments Work?

• Capital Investments can be defined in two
  distinct ways
• Firstly, an individual or a financial institution
  group shall lend money to a firm in the form of a
  loan or in return for a promise of repayment or a
  share of the profits down the road. Herein the
  Capital Investment is in the form of cash.
• Secondly, the executives may buy long term assets
  that are useful for the company to make profits
  in the long run. Herein the Capital Investment
  means physical assets.

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How To Estimate A Firm's Return Value Before
Investing?
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How To Estimate A Firm's Return Value Before
Investing?

• Capital investment can help grow a gold plant
  only if one can determine specific projects
  value before making an Investment. The three most
  commonly used methods are payback method, net
  present value method, and the IRR methods.

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How To Estimate A Firm's Return Value Before
Investing?

• For payback method, you need to divide the cost
  of investment by the annual cash flow. The
  shorter the payback, the more desirable the
  investment.

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How To Estimate A Firm's Return Value Before
Investing?

• Net present value (NPV) is the difference between
  the present value of cash inflows and the present
  value of cash outflows over a period of time.

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How To Estimate A Firm's Return Value Before
Investing?

• IRR stands for internal rate of return. When
  used, it estimates the profitability of potential
  investments using a percentage value rather than
  a dollar amount.

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The Process Of Making A Capital Investment
Decision Involves These Steps
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The Process Of Making A Capital Investment
Decision Involves These Steps

• Identification Of A Project
• Definition Of A Project And Screening
• Analyzing and Accepting
• Implementation
• Monitoring
• Post Audit

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The Disadvantages Of Capital Investment
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The Disadvantages of Capital Investment

• The first funding option for capital investment
  is always a company's own operating cash flow.
  This means capital investment can limit cash in
  an organization and also reduce earnings growth
  in the short term.
• Moreover, the total amount of debt a company has
  on the books is a figure that is closely watched
  by stock owners and analysts.

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