Project investment is long-term allocation of funds (with or without recourse to the project's sponsor) to carry an investment idea through to its stable-income generation stage. A viable investment project aims at achieving a profitable return that ensures timely payment of interest and principal, attractive return on the invested capital, and positive and consistent cash flows.
Analyzing different types of capital investment projects and investing in the most profitable projects will bring growth to a company. There are numerous types of project capital investment projects:
New Products or New Markets
A new capital investment project is important for the growth and expansion of a company. It is also important for the economy at large as it means research and development. This type of project is one that is either for expansion into a new product line or into a new product market, often called the target market. A new product or a new target market could, conceivably, change the nature of the business. It should be approved by higher-ups in the business organization.
Expansion of Existing Products or Markets
The expansion of existing products or target markets means an expansion of the business. If a company undertakes this kind of capital budgeting product, they are effectively acknowledging a surge in growth of demand.
Replacement Project Necessary to Reduce Business Costs
This type of capital budgeting project would require a detailed financial analysis with cash flows estimated from each piece of equipment in order to determine which generates the most in cash flows and, thus, saves money.
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