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”It is the capital expenditure decision that spells the difference between the...

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sjamil912 | (Level 1) Honors

Posted May 21, 2013 at 7:32 AM via web

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”It is the capital expenditure decision that spells the difference between the business success and business failure.” Do you agree with this statement?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 21, 2013 at 1:46 PM (Answer #1)

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I do not agree with this statement.  At least, I do not agree with it completely.  While the capital expenditure decision is certainly very important, it is not the only decision that can make or break a company and it may not even be the decision that does the most to determine whether a firm succeeds or fails.

The capital expenditure decision is clearly more important than things like decisions on expenditures on labor.  The reason for this is that it involved more money and it is less reversible.  If you have an airline, for example, it is not nearly as fatal to hire too many pilots as it is to lease too many airplanes.  The pilots are relatively cheap and can typically be let go somewhat easily.  The airplanes are tremendously expensive and cannot be simply given back.  Thus, capital expenditure decisions are more important than other expenditure decisions.

But decisions about marketing are at least as important as decisions about capital expenditures.  Capital expenditures are “wrong” or “right” only in relation to the number of customers you have.  To use the airline example, if you decide to fly the wrong routes or you market your services to the wrong customers, you are in at least as much trouble as you would be if you bought the wrong number of airplanes.

Thus, while capital expenditure decisions are very important, they are no more important (and may be less important) than decisions about marketing.

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sjamil912 | (Level 1) Honors

Posted May 21, 2013 at 3:21 PM (Reply #1)

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Thanks very much sir

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