Capital investment decisions

See also Biofuels Capital Investment Decisions Hydrogen Kinetic Energy, Historical Evolution of the Use of Methanol Natural Gas, Processing and Conversion of. 

Capital investment decisions are best made within the context of a life-cycle cost analysis. Life-cycle cost analysis focuses on the costs incurred over the life of the investment, assuming only candidate investments are considered that meet minimally acceptable performance standards in terms of the non-inonetary impacts of the investment. Using life-cycle analysis, the capital investment decision takes into account not just the initial acquisition or purchase cost, but maintenance, energy use, the expected life of the investment, and the opportunity cost of capital. When revenue considerations are prominent, an alternative method of analysis such as net benefit or net present value may be preferred. 

Sp ecial cases of capital investment decisions include lease or buy decisions, when-to-replace decisions, which design to choose, and comparison of alternatives with unequal service lives. These special cases are covered in Park (1997) and in Ruegg and Marshall (1990), as are the other methods for capital investment decisions. 

The increased availability of energy fueled the Industrial Revolution. The United States became the world s largest oil producer, and the new fossil fuels were abundant and modestly priced. A technology s energy efficiency was not a key part of capital investment decisions. Energy-efficient technology as a priority ranked well behind improved performance. 

Even when the time comes to make a purchasing decision, an energy-efficient motor purchase is not a certainty. Sometimes an energy-efficient motor will be the economically efficient choice at other times, not. The capital investment decision is based on the cost in relation to performance, efficiency and reliability. Moreover, the decision depends on the application and the amount of time the motor is in operation. It can be the major component of a product (drill or mixer), or a minor component (computer disk drive) it can be the major component cost of a product (fan), or it can be a minor component cost (stereo tape deck) it can run almost constantly (fan, pump, and machinery), or only a few minutes a day (vacuums and power tools). For example, contractors purchase circular saws almost solely based on performance and reliability. Time is money, and since the saw is operating only a few minutes a day and the contractor is often not responsible for the electricity costs to run the motor, energy efficiency is not a consideration performance and reliability are what matter most. On the other hand, an industrial user, who runs huge electric motors twenty-four hours a day to work pumps, machinery, and ventilation equipment, is very concerned tvitli energy efficiency as well as performance and reliability. 

See also Batteries Capital Investment Decisions Consumption Economically Efficient Energy Choices Electricity Electric Power, Generation of Faraday, Michael Fuel Cells Fuel Cell Vehicles Magnetism and Magnets Oersted, Hans Christian Tesla, Nikola. 

See also Appliances Behavior Capital Investment Decisions Demand-Side Management Efficiency of Energy Use, Economic Concerns and Efficiency of Energy Use, Labeling of Environmental... 

See also Auditing of Energy Use Capital Investment Decisions Economically Efficient Energy Choices Energy Economics Industiy and Business, Productivity and Energy Efficiency in. 

University of Illinois, Chicago Capital Investment Decisions... 

Having developed estimates of benefits as well as costs, these values must be compared. Since costs and benefits are not necessarily experienced in the same time frames, the same financial analysis methods used by the firm to make its other capital investment decisions must be used to justify the LIMS acquisition. The LIMS which is desirable from the technical and operational viewpoint can then be shown to be a truly beneficial capital investment and not just another corporate overhead expense. 

Second, our research also confirmed the idea that the timing of capital investments, rather than strong fluctuations in demand, is to blame for the industry s volatile cycles. An industry-wide herd instinct for capital investment decisions has created large supply-and-demand swings (see Nattermann, P.). Since companies make most of their capital investments during the cycle s upswings (Fig. 3.4), prices fall quickly as new supply floods the market about two years later. 

A major function of the directors of a manufacturing firm is to maximize the long-term profit to the owners or the stockholders. A decision to invest in fixed facilities carries with it the burden of continuing interest, insurance, taxes, depreciation, manufacturing costs, etc., and also reduces the fluidity of the company s future actions. Capital-investment decisions, therefore, must be made with great care. Chapters 7 and 10 present guidelines for making these capital-investment decisions. 

Major industrial capital investment decisions are strongly influenced by factors beyond those of simple profit maximization, although rate of return is the single most important element in a capital investment decision. A company will not risk shutdown or less of market position for the sake of small gains in expected profit. Investments which favor growth such as new product development are normally preferred over those which lower operating costs even if both offer the same opportunity to generate profits. 

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