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Accounting for Non-Accountants, 10th Edition by David Horner

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13

Capital investment appraisal

Introduction

In Chapter 2 we were introduced to the idea of the business engaging in capital expenditure – the acquisition of non-current assets to be used within the business. In the case of tangible assets, they will be used to facilitate the supply and production of goods and services. Although the capital expenditure does not directly affect profit in any particular year, poor choices made when deciding on capital expenditure will ultimately affect the long-term profitability of the firm.

A firm must be especially careful when deciding to undertake capital expenditure. This is because these items are normally significant amounts of expenditure and will tie up a significant amount of the firm’s resources which ...

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