Essay on Capital Investment Analysis

              Mara’s included the qualitative factors in the analysis that turned the negative net present value for the Robot-guided aluminum window machine (a window manufacturing machine) into the positive net present value (NPV). In accordance to theories and literature concepts about capital investment analysis Mara can include qualitative factors such as reduced inventory needs, customer satisfaction, scrape reduction and reputation for quality in her analysis (Goodman, et al. 2014). However, the analysis should not completely ignore the negative net present value of the investment as company should also consider the financial impact of the decision taken about capital investment analysis.  In my views the main purpose behind this capital investment is to improve the quality of the service and to ensure production efficiency in the workplace.

               Increase in the customer satisfaction through improvement in the quality will surely results in increase of customer equity and sales of the company therefore profit generated from increase in sales can turn the negative Net present value into the positive net present value. Even decision of capital investment for Robot-guided aluminum window machine is not directly showing enough profit and seems unable to meet expenditure or cost incurred but the qualitative factors as reduced inventory needs and scrape reduction produce benefit as through reducing cost of quality and cost of inventory handling and management (Cheng, Ioannou and Serafeim 2014). Cost of inventory is a silent cost that usually increases the expense and cost of production because the stored inventory require labor for handling, security systems, warehouse rent, and also increase cost in case of damages or breakage in inventory.  Because of this decision and reduction in inventory needs company can implement just-in-time principals also. Thus company can save a large amount of cost and manufacturing overhead cost. Therefore I would recommend that qualitative factors should not be ignored while taking decision towards capital investment.     

References of Capital Investment Analysis 

Cheng, Beiting, Ioannis Ioannou, and George Serafeim. 2014. "CORPORATE SOCIAL RESPONSIBILITY AND ACCESS TO FINANCE." Strategic management journal 35 (1): 1-23. Accessed 11 25, 2018.

Goodman, Theodore H., Monica Neamtiu, Nemit Shroff, and Hal D. White. 2014. "Management Forecast Quality and Capital Investment Decisions." The Accounting Review 89 (1): 331-365. Accessed 11 25, 2018.