Describe net capital investment as a component of investment analysis

Net capital investment represents the amounts of funds committed to a project. It may include not only the cost of land, building, plant and machinery but also the increase in working capital required to support larger operations.

If a project results in the replacement of an existing capital asset, which has not been fully depreciated, there is a tendency to include the remaining value of the old asset in the amount of the investment.

However, the book value of the replaced asset should be of no consequence to the investment analysis of the new proposal as it pertains to an earlier investment proposal and should be accounted in that proposal. The only relevant factor to be considered is the salvage value of the old asset, which can be reduced from the investment required for the new project.

Sanisha Maharjan
Jan 18, 2022
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