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Essay / Research Paper Abstract
This 3 page paper discusses the following statement; “Many businesses around the world still fail because their capital investment decisions are based upon a calculation on the back of an envelope and do not take any of the correct factors into account. Even larger businesses often get this wrong”. The paper considers the way businesses undertake their appraisals, the sources of error, tools that are used and the ways in which the process may be improved. The bibliography cites 5 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEinvdec1.rtf
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Unformatted sample text from the term paper:
is going to be invested they will want to ensure that they will get a good return, if investment does not give good return then the company will be letting
down its shareholders and possibly employees (Chadwick, 2001). In addition to ensuring that the investment will be profitable and meat to the company goals and objectives, the company will also
want to consider opportunity cost (Nellis and Parker, 2000). Any company will have a limited amount of capital that can be invested, investing in one project will mean another will
be forsaken or delayed. The difference between the returns of the two projects is the opportunity cost. To maximise returns companies were undertake investment appraisals that will allow projects to
be compared so that the most profitable, or best for the company in terms of risk profile, can be accepted (Baddeley, 2007). It has been argued that many capital
investment decisions are often lacking resulting in an inaccurate output to the decision-making process. Financial analysis of any capital investment requires accurate inputs as well as a suitable analytical process
in order to give reliable results. Where a company, large or small, relies on calculation is performed in a few minutes on the back of envelope it would be unsurprising
that the results will be lacking. However, it is not a problem that is associated only with small businesses that lack complex financial understanding. Large companies, as well as
small companies, can also make bad decisions due to their capital investment appraisal systems. Research by Soares (et al, 2007) has identified a number of problems with in the way
that companies undertake investment appraisal. The research indicated that there were specific areas where companies were most likely to make mistakes, regardless of their size. For investment appraisal it is
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