Page 3: Investment appraisal
Every proposed project undergoes investment appraisal. This procedure establishes whether a particular project is worth taking forward. Managers will ask key questions about a proposal, including:
- How expensive are the initial outlay and the final total outlay likely to be?
- For how long are we likely to be spending money without any financial return?
- How long is it likely to be before we recover, from sales, all the money we have invested?
- What return can we reasonably expect from our investment in the long term?
- How big are the risks? What events over which we have little or no control could cause this project to falter or fail? How likely are they?
Risks for the imaging industry include:
- a significant rise in the cost of borrowing to finance investment
- a downturn in business activity worldwide that persuades industrial customers to postpone their own purchase of new plant and equipment
- poorer job prospects for the general public that deter private consumers from spending on the latest products.
Large scale investment
Agfa must consider these factors as it contemplates large scale investment in new digitally based technologies.
During 2000 Agfa invested around 224 million Euros (equivalent to 4% of its sales revenue) in research and development. Part of this involved working with external partners eg universities and leading research centres. Much of the work reflected the need to move forward in:
- developing the transition from analogue to digital solutions
- meeting a wider variety of customer needs
- helping Agfa to create new market sectors and to enter them profitably.