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. [activistinvesting] EXAMPLE – Hotel sea view is a nice hotel. It has 50 rooms. The hotel generates a net profit of $25 per room per night. The average occupancy…