One of many classifications is as follows,
• Growth of existing enterprise
• Enlargement of new business
• Replacement and moderation
Growth and Diversification
A company may add capacity to its existing product lines to broaden current operation. For instance, the Firm Y might improve its plant capacity to manufacture more « X ». It is an instance of related diversification. A firm may develop its activities in a new business. Enlargement of a new enterprise requires investment in new products and a new kind of production activity within the firm. If a packing manufacturing firm put money into a new plant and machinery to produce ball bearings, which the firm has not manufacture before, this represents growth of new enterprise or unrelated diversification. Typically an organization acquires existing firms to broaden its business. In either case, the firm makes funding within the expectation of additional revenue. Funding in present or new products might also be called as income enlargement investment.
Replacement and Modernization
The main goal of modernization and replacement is to improve working effectivity and reduce costs. Cost financial savings will replicate in the increased profits, but the firms revenue could remain unchanged. Assets grow to be outdated and obsolete with technological changes. The firm must determine to switch those assets with new assets that operate more economically. If a Garment company adjustments from semi automated washing equipment to completely automated washing equipment, it is an instance of modernization and replacement. Replacement decisions help to introduce more efficient and economical assets and subsequently, are also called value reduction investments. However, replacement decisions that contain substantial modernization and technological improvements develop revenues as well as reduce costs.
One other useful way of classify investments is as follows
• Mutually exclusive funding
• Independent investment
• Contingent investment
Mutually unique funding
Mutually unique investments serve the identical objective and compete with each other. If one funding is undertaken, others will need to be excluded. A company may, for instance, either use a more labor intensive, semi computerized machine, or employ a more capital intensive, highly automatic machine for production. Selecting the semi-automatic machine precludes the acceptance of the highly computerized machine.
Independent investments serve different functions and don’t compete with every other. For example, a heavy engineering company could also be considering expansion of its plant capacity to fabricate additional excavators and addition of new production facilities to manufacture a new product light commercial vehicles. Relying on their profitability and availability of funds, the company can undertake both investments.
Contingent investments are dependent projects; the selection of one funding necessitates undertaking one or more other investment. For instance, if an organization decides to build a factory in a remote, backward area, it might need to invest in houses, roads, hospitals, and lots of more. For employees to draw the work force thus, building of factory also requires investment in facilities for employees. The total expenditure will be treated as one single investment.
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