Module+19000+Introduction+and+Learning+Objectives


 * Introduction **

Module 19000 focuses on capital investment decision. The purpose of the capital investment decisions includes allocation of the firm’s capital funds into long term assets most effectively in order to ensure the best return possible. These types of decisions involve considerable risk because they usually involve large amounts of money and extended durations of time. In addition, capital investment decisions are usually accompanied by a number of alternatives from which to choose.

The capital investment decisions are mainly governed by the process of ranking and identifying the capital investments of the firm. Depending on the various projects the firm is having at a certain period of time, the firms prioritize the projects. The ranking of projects depends on how much a project will return and which project will be able to add maximum value to the business.

There are various measures that give the estimation of the return of the firm over various investment projects. In order to determine the value of a particular project, four most famous methods are - IRR method, net present value method, payback method and accounting rate of return method. These methods are applied while taking decisions on capital investment.

**The learning objectives: ** - Understand the important role of capital investment decision in an organization - Understand methods used in capital investment decision, including: definition, explanation, component, formula, advantages and disadvantages… of: - Know how and when to apply the methods in practice.
 * Payback method
 * Accounting rate of return method
 * Net present value method
 * Internal rate of return method