Abstract
In Chapter 11 we discuss some of the reasons which motivate expansion. It is fair to say that management would not undertake expansion if it thought that the cost of this — both initial and annual — would exceed the additional income or revenue arising. What is much more likely is that the prospect of larger revenues, both in absolute terms and relative to the size of capital earning these returns (an increase in the ratio of profits to capital employed), is the stimulant for expanding the size of the organisation. This chapter is concerned with the techniques management uses to choose between capital projects which are competing for limited capital resources and to decide whether a capital project is undertaken or not. The factors which control the administration of our capital budget have been discussed elsewhere, particularly in Chapter 7.
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Further Reading
A. M. Alfred and J. B. Evans, Discounted Cash Flow, 3rd ed. (London: Chapman & Hall, 1971).
L. P. Anderson, V. V. Miller and D. L. Thompson, The Finance Function (New York: Intext Educational Publishers, 1971).
M. H. Cadman (ed.), Business Economics (London: Macmillan, 1968) ch. 6.
J. L. Carr, Investment Economics (London: Routledge & Kegan Paul, 1969).
B. Carsberg and A. Hope, Business Investment Decisions under Inflation (London: I.C.A., 1976).
J. Dean, ‘Measuring the Productivity of Capital’, in Studies in Accounting Theory, ed. W. T. Baxter and S. Davidson (London: Sweet & Maxwell, 1962).
D. Franklin, ‘Ending the Equity Shortage’, Investors’ Chronicle, 29 September 1967.
J. Freear, Financing Decisions in Business (London: Accountancy Age Books, 1973).
P. G. Hastings, The Management of Business Finance (New York: Van Nostrand, 1966).
C. J. Hawkins and D. W. Pearce, Capital Investment Appraisal (London: Macmillan, 1971).
I.C.I. Ltd, Assessing Projects: A Programme for Learning, 6 vols (London: Methuen, 1970).
Industrial and Commercial Finance Corporation, Capital Investment Decisions (London, n.d.).
A. S. Jackson and E. C. Townsend, Financial Management (London: Harrap, 1970).
R. J. Lister, Studies in Optimal Financing (London: Macmillan, 1973).
A. J. Merrett and A. Sykes, Capital Budgeting and Company Finance (London: Longman, 1966).
K. Midgley and R. G. Burns, Case Studies in Business Finance and Financial Analysis (London: Macmillan, 1971) Case Study 4.
K. Midgley and R. G. Burns, The Capital Market: its Nature and Significance (London: Macmillan, 1977) ch. 4.
National Economic Development Council, Investment Appraisal (London, 1967).
G. D. Newbould, Business Finance (London: Harrap, 1970).
D. O’Shea, ‘What to do with Rights Issues’, Investors’ Chronicle, 16 August 1968.
L. E. Rockley, Investment for Profitability (London: Business Books, 1973).
J. M. Samuels and F. M. Wilkes, Management of Company Finance (London: Nelson, 1971).
H. H. Scholefield, N. S. McBain and J. Bagwell, ‘The Effects of Inflation on Investment Appraisal’, Journal of Business Finance, Summer 1973.
E. C. Townsend, Investment and Uncertainty: A Practical Guide (Edinburgh: Oliver & Boyd, 1969).
B. R. Williams and W. P. Scott, Investment Proposals and Decisions (London: Allen & Unwin, 1965).
H. Wincott, ‘Back to Rights Issues?’, Investors’ Chronicle, 26 January 1968.
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© 1979 Kenneth Midgley and Ronald G. Burns
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Midgley, K., Burns, R.G. (1979). Evaluating the Return on Capital Expenditure. In: Business Finance and the Capital Market. Palgrave, London. https://doi.org/10.1007/978-1-349-16186-7_9
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DOI: https://doi.org/10.1007/978-1-349-16186-7_9
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