Why do businesses invest?
- Businesses might want to increase market share
- Some businesses invest in new technology to minimise costs or improve quaility
- Business may invest in new capacity to help the business grow organically (induced) It will help reduce labour costs and improve consistency
- May have to invest in new machinery due to wear and tear and become obsolete (autonomus)
- To be competive within the market
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- Return - this is found by substracting the cost of the project from the expeceted revenue.
- Business cofidence- this is influenced by the businesses previous success in new investments that have been made, the state of the economy, the exsiting level of capacity and future order levels.
- External factors - this can be direct or indirect.
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The payback method refers to the amount of time it takes for a project to recover or payback the initial outlay.
The one with the shortest payback period is choosen.
- It is simple to use
- This method is useful when technology changes rapidly
- Cash earned after the payback is not taken into consideration in
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