Evaluating the Return on Capital Expenditure

  • Kenneth Midgley
  • Ronald G. Burns


In Chapter 11 we discuss some of the reasons which motivate expansion. It is fair to say that management would not undertake expansion if it thought that the cost of this — both initial and annual — would exceed the additional income or revenue arising. What is much more likely is that the prospect of larger revenues, both in absolute terms and relative to the size of capital earning these returns (an increase in the ratio of profits to capital employed), is the stimulant for expanding the size of the organisation. This chapter is concerned with the techniques management uses to choose between capital projects which are competing for limited capital resources and to decide whether a capital project is undertaken or not. The factors which control the administration of our capital budget have been discussed elsewhere, particularly in Chapter 7.


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Further Reading

  1. A. M. Alfred and J. B. Evans, Discounted Cash Flow, 3rd ed. (London: Chapman & Hall, 1971).Google Scholar
  2. L. P. Anderson, V. V. Miller and D. L. Thompson, The Finance Function (New York: Intext Educational Publishers, 1971).Google Scholar
  3. M. H. Cadman (ed.), Business Economics (London: Macmillan, 1968) ch. 6.Google Scholar
  4. J. L. Carr, Investment Economics (London: Routledge & Kegan Paul, 1969).Google Scholar
  5. B. Carsberg and A. Hope, Business Investment Decisions under Inflation (London: I.C.A., 1976).Google Scholar
  6. J. Dean, ‘Measuring the Productivity of Capital’, in Studies in Accounting Theory, ed. W. T. Baxter and S. Davidson (London: Sweet & Maxwell, 1962).Google Scholar
  7. D. Franklin, ‘Ending the Equity Shortage’, Investors’ Chronicle, 29 September 1967.Google Scholar
  8. J. Freear, Financing Decisions in Business (London: Accountancy Age Books, 1973).Google Scholar
  9. P. G. Hastings, The Management of Business Finance (New York: Van Nostrand, 1966).Google Scholar
  10. C. J. Hawkins and D. W. Pearce, Capital Investment Appraisal (London: Macmillan, 1971).Google Scholar
  11. I.C.I. Ltd, Assessing Projects: A Programme for Learning, 6 vols (London: Methuen, 1970).Google Scholar
  12. Industrial and Commercial Finance Corporation, Capital Investment Decisions (London, n.d.).Google Scholar
  13. A. S. Jackson and E. C. Townsend, Financial Management (London: Harrap, 1970).Google Scholar
  14. R. J. Lister, Studies in Optimal Financing (London: Macmillan, 1973).Google Scholar
  15. A. J. Merrett and A. Sykes, Capital Budgeting and Company Finance (London: Longman, 1966).Google Scholar
  16. K. Midgley and R. G. Burns, Case Studies in Business Finance and Financial Analysis (London: Macmillan, 1971) Case Study 4.Google Scholar
  17. K. Midgley and R. G. Burns, The Capital Market: its Nature and Significance (London: Macmillan, 1977) ch. 4.Google Scholar
  18. National Economic Development Council, Investment Appraisal (London, 1967).Google Scholar
  19. G. D. Newbould, Business Finance (London: Harrap, 1970).Google Scholar
  20. D. O’Shea, ‘What to do with Rights Issues’, Investors’ Chronicle, 16 August 1968.Google Scholar
  21. L. E. Rockley, Investment for Profitability (London: Business Books, 1973).Google Scholar
  22. J. M. Samuels and F. M. Wilkes, Management of Company Finance (London: Nelson, 1971).Google Scholar
  23. H. H. Scholefield, N. S. McBain and J. Bagwell, ‘The Effects of Inflation on Investment Appraisal’, Journal of Business Finance, Summer 1973.Google Scholar
  24. E. C. Townsend, Investment and Uncertainty: A Practical Guide (Edinburgh: Oliver & Boyd, 1969).Google Scholar
  25. B. R. Williams and W. P. Scott, Investment Proposals and Decisions (London: Allen & Unwin, 1965).Google Scholar
  26. H. Wincott, ‘Back to Rights Issues?’, Investors’ Chronicle, 26 January 1968.Google Scholar

Copyright information

© Kenneth Midgley and Ronald G. Burns 1979

Authors and Affiliations

  • Kenneth Midgley
  • Ronald G. Burns

There are no affiliations available

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