Capital Investment Analysis that involves the purchase of items such as land, machinery, buildings, or equipment is among the most important decisions undertaken by the business manager. These decisions typically involve the commitment of large sums of money, and they will affect the business over several years. Furthermore, the funds to purchase a capital item must be paid out immediately, whereas the income or benefits accrue over time. Because the benefits are based on future events and the ability to foresee the future is imperfect, a considerable effort is necessary to evaluate investment alternatives as thoroughly as possible. The most important task of investment analysis is gathering the appropriate data. Selecting investments that will improve the financial performance of the business involves two fundamental tasks:

• Economic Profitability: analysis determines whether the investment will contribute to the long-term profits of the business.
• Financial Feasibility: analysis determines whether the investment will generate sufficient cash income to make the principal and interest payments on borrowed funds used to purchase the asset.