Long Term Investment Decisions

1308 WordsJun 12, 20136 Pages
Long-Term Investment Decisions (Course title) (Date) Introduction Long term capital decisions involve choosing how to finance long term projects. For a movie rental company, such decisions would include opening new shops in new markets or buying new machinery that would improve the firm’s technology. Before making such decisions, a firm has to do an analysis of the returns that the new project would bring against the cost outlay of the project. There are several ways of doing such an analysis. They include the payback period, net present value, internal rate of return among others. The main aim of conducting this analysis is to determine whether the expected returns meet a certain predetermined benchmark, usually higher than the risk…show more content…
One of the greatest advantages of forming a major is that blockbuster would enjoy the economies of scale as a result of operating as a larger company. Economies of scale occur as a result of reduction of average costs as a result of increased output. In addition, the merger can help blockbuster achieve diversification. For example, blockbuster can merge with firms that provide a different service from what it offers. By doing so, block buster will obtain access to knowledge and expertise that may help the firm gain competitive advantage. However, the advantages of forming a merger depend on a number of factors. Specifically, the success of a merger depend on the scope of economies scale created, effects on monopoly power, and the effects on cost. However, due to the threats, blockbuster chooses to pursue its expansion plan by capital investment. Capital projects are long term investments that are made to build on, or improve a capital intensive project. A project that is capital intensive requires the input of considerable amounts of capital especially financial and labor to start and run. They also require a lot of planning and resources. There are a number of ways that a firm can finance capital projects. Before determining the best way to finance capital projects, a firm should seek to determine the costs, the viability of the investment and the stream of returns from the investment. Despite the advantages of forming a merger, there are a lot of
Open Document