Kinds of Investment Decisions
Among the classifications is really as follows,
• Growth of existing business
• Growth of start up business
• Substitute and moderation
Expansion and Diversification
A business will add ability to its existing products to grow existing operation. For instance, the organization Y may increase its plant ability to manufacture more “X”. It’s an illustration of related diversification. A strong may expand its activities inside a start up business. Growth of a brand new business requires purchase of new items along with a new type of production activity inside the firm. If your packing manufacturing company purchase a new plant and machinery to create ballbearings, that the firm hasn’t manufacture before, this represents growth of start up business or unrelated diversification. A company acquires existing firms to grow its business. Either in situation, the firm makes purchase of the expectation of more revenue. Purchase of existing or new items can also be known as as revenue expansion investment.
Substitute and Modernization
The primary purpose of modernization and substitute would be to improve operating efficiency and lower costs. Financial savings will reflect within the elevated profits, however the firms revenue may remain unchanged. Assets become outdated and obsolete with technological changes. The firm have to research to exchange individuals assets with new assets that operate more economically. If your Outfit company changes from semi automatic washing equipment to completely automatic washing equipment, it’s an illustration of modernization and substitute. Substitute decisions assistance to introduce more effective and economical assets and for that reason, will also be known as cost reduction investments. However, substitute decisions which involve substantial modernization and technological enhancements expand revenues in addition to keep costs down.
Another helpful method of classify investments is really as follows
• Mutually exclusive investment
• Independent investment
• Contingent investment
Mutually exclusive investment
Mutually exclusive investments serve exactly the same purpose and contend with one another. If a person investment is carried out, others must be excluded. A business may, for instance, either make use of a more labor intensive, semi automatic machine, or use a more capital intensive, highly automatic machine for production. Selecting the semi-automatic machine precludes the acceptance from the highly automatic machine.
Independent investments serve different purposes and don’t contend with one another. For instance, huge engineering company might be thinking about growth of its plant ability to manufacture additional excavators and inclusion of new plants to fabricate something new light commercial vehicles. Based on their profitability and accessibility to funds, the organization can undertake both investments.