How To Value Capital Expenditures
Capital Expenditures pose a challenge to Investors while valuing a business. The puzzle is to figure out what would be the return on these investments and when they will be realized. Following is a basic example that tries to explain how we need to differentiate the two main types of Capital expenditures and how to value them:
- Capital Expenditures that maintain current earning power.
- Capital Expenditures that increase the earning power.
EXAMPLE – Hotel sea view is a nice hotel. It has 50 rooms. The hotel generates a net profit of $25 per room per . . .
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