Capital Investment on Short-Term Projects

Capital Investment
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Capital Investment
Investments involve spending money. Hence, an organization or an individual needs to select suitable projects that they can invest their capital. Capital budgeting is a critical tool while intending to invest as it helps define the most effective investment leading to making the right decisions (Pristine, 2015). While intending to invest, a person puts into place several factors such as market availability, total calculation of variable, and fixed cost of production needed to make it successful. Also, comparing the project rate of return to the increased average cost of capital is crucial. This is because when one realizes that the weighted average cost of capital is lower than the rate of returns, the project is accepted and vice versa. At the end of June this year, I completed a short-term project which I started during the Covid 19 pandemic outbreak. It involved the purchase of surgical masks from the manufacturing company and distributing them to the small business retailers at a profit.
Starting the project, I projected to use some capital that I acquired from debtors and personal savings. An initial outlay of the project included cash at hand, $1,830, external capital $500, and a distributing van at a total cost of $1850. It also needed a stall for storage before distribution, but I had an extra room in my house which I used. After engaging in the business for a few months, I realized that we do not always select projects with higher return on investment (ROI) rates. I realized there is no guarantee that the projected costs and returns will arrive as predicted. Secondly, I realized there is a relationship between risk and return as there is no guarantee that while one engages in projects that taking a higher risk will earn greater returns (Xin Rui et a...