What Criteria Must Be Met for Accepting Any Capital Expenditure

question 8

Essay

What criteria must be met for accepting any capital expenditure proposal with respect to minimum rate of return on investment?

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Definitions:

Economic Order Quantity

A calculation used to determine the optimal order size that minimizes the sum of carrying costs and ordering costs in inventory management.

Inventory Costs

Costs associated with ordering, holding, and managing inventory, including storage, insurance, and obsolescence.

Carrying Costs

Expenses associated with holding or maintaining an asset over time, such as storage, insurance, and taxes for physical goods.

Reorder Point

The level of inventory which triggers an action to replenish that particular inventory stock.