Investment Analysis

Capital investment decisions involving the procurement of items such as land, machinery, buildings, or equipment are among the most important decisions undertaken by the business managers. These decisions typically involve the commitment of large sums of money, and they will affect the business over a number of years. Furthermore, the funds to purchase a capital item must be paid out immediately, whereas the income or benefits accrue over time. Because the benefits are based on future events and the ability to foresee the future is imperfect, there is the need to make a considerable effort to evaluate investment alternatives as thoroughly as possible. Selecting investments that will improve the financial performance of the business involves two fundamental tasks: 

1. i) Economic profitability analysis and 
2. ii) Financial feasibility analysis.  

Economic profitability will show if an alternative is economically profitable. However, an investment may not be financially feasible: that is, the cash flows may be insufficient to make the required principal and interest payments. There is need to equip the modern managers with the tools and techniques to make the right decisions for continued prosperity of the businesses.