Part Six

Toolbox

A STEP-BY-STEP GUIDE TO ANALYZING CAPITAL EXPENDITURES

You’ve been talking with your boss about buying a new piece of equipment for the plant, or maybe mounting a new marketing campaign. He ends the meeting abruptly. “Sounds good,” he says. “Write me up a proposal with the ROI and have it on my desk by Monday.”

Don’t panic: here’s a step-by-step guide to preparing your proposal.

1. Remember that ROI means return on investment—just another way of saying, “Prepare an analysis of this capital expenditure.” The boss wants to know whether the investment is worth it, and he wants calculations to back it up.

2. Collect all the data you can about the cost of the investment. In the case of a new machine, total costs would include the ...

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