Los 24.a Flashcards
(6 cards)
What are the four types of capital investments?
Going concern projects: Projects needed to maintain business operations or reduce costs.
Regulatory/compliance projects: Required by government or regulatory agencies, often involving safety or environmental concerns.
Expansion projects: Projects that grow the business, such as entering new markets or introducing new products.
Other projects: Investments outside the company’s current business lines, such as new technologies or acquisitions.
What is a going concern project, and how is it typically financed?
A going concern project is needed to maintain the business or reduce costs. It doesn’t require detailed analysis, but questions like whether existing operations should continue are considered. These projects are often financed using a match funding approach, where the financing sources align with the project’s life, typically using a company’s annual depreciation as an estimate for the capital investment needed.
What are regulatory/compliance projects, and what is their main characteristic?
Regulatory/compliance projects are required by government or insurance entities, often focused on safety or environmental concerns. These projects typically generate little to no revenue and may require the company to evaluate alternative ways of implementing them.
What is the nature of expansion projects, and what is required for their evaluation?
Expansion projects are intended to grow the business, such as entering new markets or launching new products. These projects require a complex decision-making process that includes forecasting future demand, along with detailed revenue and expense forecasts.
What are other projects in capital investment, and what challenges do they present?
Other projects involve investments outside the company’s existing business lines, such as new technologies or acquiring businesses in different industries. These projects often resemble startups and involve high uncertainty and risks, such as the risk of overpaying for acquisitions.
