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Financial Management & Corporate Finance Case Study

Case Title:

Evaluation of Capital Investment Projects

Publication Month & Year : July 2009

Authors: Swapna Pragada & Dr. Lokanandha Reddy Irala

Industry: Manufacturing

Case Code: FM0016

Teaching Note: Available

Structured Assignment: Available


The main objective of the case study is to evaluate the capital investment projects.Firms make investment decisions only after considering the returns that a particular project would generate and its profitability in the long run. As the projects involve a lot of expenditure,firmsevaluate and scrutinise them more rigorously. As the money that a firm has–whether in the form of equity or debt–is limited,it should be careful while selecting or rejecting a project.Ifa firm is not cautious while making capital expenditure decisions, not only the valuable time of the firmbut also a lot of money would be wasted in the process.The case study dealswith a similar situation faced by awhite goods company, ABCLtd.It primarily focuses on the capital investment decision taken by the company in selecting optimal machines required for its expansion.

Pedagogical Objectives:

  • To introduce the cash flow tables and their interpretation
  • To introduce and compare the strengths and weaknesses of traditional/nondiscounting cash flow measures such as payback period and accounting rate of return in valuing investment projects
  • To stress the importance of time value of money.

Keywords : Capital Investment Decisions; Capital Budgeting Decisions; Rate of Return; Cash Flows; Profits; Non-discounting cash flow techniques; ARR; average rate of return; pay-back period; Course Case Maps; Course Case Packs; Financial Management Course Case Pack; MBA; Financial Management; Finance for Managers; Principles of Financial Management; Managerial Finance; Business Finance; Corporate Finance; Financial Management Course Case Map

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