Investments comparison

TABLE 21-27 Initial Capital Investment Comparison between Liquefied Petroleum Gas and Electric Forklift Trucks of 2-Ton Capacity ... 

The following simple example illustrates the principle of investment comparison. A chemical company is considering adding a new production unit which will require a total investment of 1,200,000 and will yield an annual profit of 240,000. An alternative addition has been proposed requiring an investment of 2 million and yielding an annual profit of 300,000. Although both of these proposals are based on reliable estimates, the company executives feel that other equally sound investments can be made with at least a 14 percent annual rate of return. Therefore, the minimum rate of return required for the new investment is 14 percent. 

When investment comparisons are made, alternatives requiring more initial capital are compared only with lower investments which have been found to be acceptable. Consider an example in which an investment of 50,000 will give a desired result, while alternative investments of 60,000 and 70,000 will give the same result with less annual expense. Suppose that comparison between the 60,000 and the 50,000 cases shows that 60,000 investment to be unacceptable. Certainly, there would be no reason to give further consideration to the 60,000 investment, and the next comparison should be between the 70,000 and the 50,000 cases. This type of reasoning, in which alternatives are compared in pairs on a mutually exclusive basis, is illustrated in the following simplified example. 

The point of maximum net savings, as indicated by 0 in Fig. 10-5, represents a classical optimum condition. However, the last incremental investment before this maximum point is attained is at essentially a zero percent return. On the basis of alternative investment comparisons, therefore, some investment less than that for maximum net savings should be recommended. 

Problem 17. Incremental Investment Comparison for Two Conversions for a Dicyanobutene Reactor System ... 

In making the investment comparison, ignore working capital and consider only the FCI with an annual charge for depreciation of 8 percent of FCI. Assume all operating costs except those for raw materials and depreciation are constant for the two conversion cases under consideration. Do not consider effects of income taxes. 

International system of units (SI), xiii, 778-799 advantages of 782-785 base units for, 779-780 conversion tables for, 790-799 derived units for, 781-783 prefixes for, 786, 788-789 rules for use of 785-790 supplementary units for, 780-781 unacceptable units for, 784 Inventions, 102 Inventory accounts, 146 Investment ratio, 191 Investment tax credif 260 Investments alternative, 315-329 practical factors in choosing, 335-336 as replacements, 329-335 capital (see Capital investments) comparison of 10, 315-329... 

Further study, including more detailed corrosion and erosion information and an alternative investment comparison, would be needed to make a definitive recommendation. 

Return on investment comparison, which is reciprocal to the pay-out period system - the results can be compared directly in terms of interest... 

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