Reference no: EM132502106

Point 1: Investments decisions involving the acquisition of long-lived assets are often referred to as Capital Expenditures Decisionsbecause they require that capital company funds be expended to acquire additional resources. Capital Expenditure is also known as the money spent by a business or organization on purchasing or maintaining fixed assets. Some examples are; land buildings, types of equipment, furniture, and fixtures).

Point 2: The next step is called Capital Budgeting; this is where the investment decision is analyzed. Most firms/businesses carefully analyze the potential project in which they may invest. This process is used to the quantitative view of each proposed fixed asses investment, thereby giving a rational basis for making a judgment.

Discussion 1: Net Present Value also know as (NPV); their approach is first to identify the amount and time of each cash flow associated with a potential investment. The second step is to equate or discount the cash flow to their present value using a required rate of return. Lastly, the final step is to evaluate the NPV. How is that figured out? First is, to sum up, the present value of all cash flows (inflow & outflow) that will give you the net present value of the investment. Then from there, you can either figure out if it is positive or negative in other words, is the risk worth the reward or not continue with the proposed project or purchase.