Types of capital investment projects
Investment projects may be classified in a number of ways. The following kinds of investment projects are commonly used by both private and public sector business units in their capital expenditure forecasts:
(a) Expansion of existing product lines.
(b) Expansion into new product lines.
(c) Replacement and modernization schemes
(d) Projects for the utilization of scraps, and also of surplus installed capacity
(e) Cost reduction projects.
The projects listed above are generally profit-oriented and therefore they may be evaluated on the basis of their costs and benefits. But there are investments which are undertaken by all business units and on which it would be difficult to measure returns, such as the following:
(1) Safty precautions provision of safety devices and equipment may be demanded by various legal requirements.
(2) Welfare projects: provision of sports facilities for employees may boost employees morale. This cannot be evaluated financially.
(3) Service projects: provision of buildings and equipment for non manufacturing departments may be essential, but the return from investment on them cannot be evaluated.
(4) Research and development: This may be initiated to improve the company methods or products. It would be very difficult to measure the return on R&D for a considerable period of time.
(5) Educational projects: Provision of company training course may be instrumental in improving the efficiency of employment but the returns from investment on such programmes may be difficult to evaluate.
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