Type of Capital Investment Decisions

Type of Capital Investment Decisions:

Capital investment decisions are the decisions in which we invest our money in huge projects such as purchasing of machinery and setting up a new plant or show-room and so on. Therefore, we must know the kinds of capital investment decisions. We can classify capital investment decisions on the following basis.

A. On the basis of Firm's Existence:

1. Buying New and Replacement of Fixed Asset:

If company or firm is recently incorporated, it will take new fixed asset which must be purchased although an existing form will take capital investment decisions associating to substitution of any old fixed asset due to modernization. The company will take decision which fixed asset must be substituted and which new fixed asset must be purchased after substitution.

2. Expansion of Fixed Asset:

In this decision, company might take decision to extend fixed asset for enhancing efficiency. Assume that we have one plant however due to increase of demand; we can take decision for development.

3. Diversification Decision:

For dropping risk of business, company might take decision to diversify its business or market. Assume that one company is doing online business of selling laptop; it might take decision for selling of mobile or ipad. However for this, it requires to invest big amount.

B. On the basis of Decision Situation:

1. Mutually Exclusive Decision:

It is that capital decision in which we acknowledge one proposal and other will not comprise in it. For illustration, we can purchase semi automatic machine or highly automatic machine. If we encompass decision for buying semi automatic, it means, we will not employ highly automatic machine. Cost of main factor for taking such decision. Cheap investment might be our best alternative.

2. Accept and Reject Decision:

When we take decision of accept and reject of project on its return basis, then such kind of decision will be accept and reject decisions.

3. Contingent Decision:

These are the decisions in which one decision needs other decision. Assume that we have to take decision to make plant, for making plant; we too have to take decision for making building and trading of machinery.

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