The objective of capital investment decisions is to maximize the value of the company to its shareholders. This can be achieved by making investments that will generate a return that is greater than the cost of capital.
The specific objectives of capital investment decisions can vary depending on the company’s circumstances. However, some common objectives include:
- Increasing profits
- Increasing shareholder value
- Reducing costs
- Improving efficiency
- Expanding into new markets
- Developing new products or services
- Diversifying the company’s business
MCQs on Objectives of Capital Investment Decisions
- Which of the following is not an objective of capital investment decisions?
- Increasing profits
- Increasing shareholder value
- Reducing costs
- Improving customer satisfaction
The answer is Improving customer satisfaction. Improving customer satisfaction is a marketing objective, not a capital investment objective.
- Which of the following is the most important objective of capital investment decisions?
- Increasing profits
- Increasing shareholder value
- Reducing costs
- Improving efficiency
The answer is Increasing shareholder value. The ultimate goal of any company is to maximize shareholder value. This can be achieved by making investments that will generate a return that is greater than the cost of capital.
Conclusion
The objectives of capital investment decisions should be aligned with the company’s overall strategic goals. By making investments that are aligned with these goals, companies can maximize their value to shareholders and ensure their long-term success.
Here are some additional tips for setting the objectives of capital investment decisions:
- Consider the company’s overall strategic goals.
- Be realistic about the company’s financial resources.
- Consider the risks and uncertainties associated with the investment.
- Get input from key stakeholders.
By following these tips, companies can set objectives for capital investment decisions that are achievable and that will help them achieve their strategic goals.