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ASSIGNMENT ON

PROJECT FORMULATION
AND APPRAISAL

By
AP14159
AP14181
AP14184
AP14191
AP14197

Project as Capital Investment


Decision

Importance
Long term effects: consequences extends far into the future
Irreversibility: wrong decision cant be reversed without

incurring significant loss


Substantial outlays: usually involve substantial outlays. Capital

cost tend to increase with advanced technology.

Difficulties
Measurement problem: identifying and measuring cost and

benefit tend to be very difficult.


Uncertainty: impossible to predict exact cash flows in the future
Temporal spread: cost and benefit are usually spread out over a

long period of time. Problems in estimating discount rates and


establishing equivalences.

Types of capital investment


Physical: land, building, plant, machinery etc
Monetary: deposits, bonds, equity shares etc
Intangible: outlays on R&D, training, market development, franchises
etc
Strategic investment: which has significant impact on the direction of
the farm. E.g. TATA motors decision to invest in passenger car project
Tactical investment: meant to implement a current strategy as
efficiently or as profitably as possible. E.g. replace an old machinery to
improve productivity.
In terms of planning and control Mandatory investment: to comply with statutory requirements e.g.
pollution control equipment, fire fighting equipment, a crche in the
factory
Replacement investment: worn out equipment with new equipment
Expansion investment: