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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Investment Criteria
Return - this is found by substracting the cost of the project from theexpeceted 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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Payback method
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.
Advantages
It is simple to use
This method is useful when technology changes rapidly
Disadvantages
Cash earned after the payback is not taken into consideration in
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