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The corporation tax does not of itself constitute the whole burden of taxation on investment in the company sector of the company; on the payment of a dividend a company must now deduct and remit standard rate income tax to the tax collectors. Furthermore, gains realized on the selling of shares result in a capital gains tax assessment on the seller. These three taxes on private investment have a direct impact on the prospective rate of return which companies should seek on equity financed capital investment projects. The purpose of this paper is to outline the factors which determine the cut-off rate with which a company's net of corporation tax (relieved, as the case may be, by investment incentives) return on investment should be compared. From a computational standpoint this purpose may be alternatively described as the determination of the rate of discount for discounting cash-flows (of a company) which are stated net of corporation tax and investment incentives. From a computational standpoint it is convenient to calculate the net of corporation tax return to a company because, under the new system of taxation, the investment incentives (other than cash grants to which this point has no relevance) can be set against corporation tax only. Hence an equity cut-off rate needs to embody an allowance for income tax and capital gains tax. [ABSTRACT FROM AUTHOR]

The article discusses replacement investment, or replacement of existing capital equipment, and proposes an optimal replacement method. Replacement decisions involve analysis of the probable duration of the investment, the optimal timing of the investment and the rate of return on an investment. A difference in cash flows should be assessed for the cost of replacing equipment versus continuing with the old equipment. The residual value of the equipment must be calculated. An example of the calculations for replacing a die stamping machine is presented.

The article presents information on investment criteria and the cost of capital. According to elementary economic theory, profit is maximized when marginal revenue equals marginal cost. By adapting this doctrine to the capital budgeting situation, we get the theory that a company's investment program should be expanded to the point where the return from the last dollar invested equals the cost of raising that dollar. This suggests that a rational decision to accept or reject a particular investment opportunity can be made consistently. Unless the rate of return exceeds the cost of raising funds in the capital market and offer should be rejected.

This article discusses the results of study on capital expenditure decisions in industry carried out from the Centre for Business Research at the University of Manchester. Of the firms studied, many did not calculate the yield on investments. The author proposes that a lack of competitive pressure undermined the need for profit maximization. Alternative reasons explored include a lack of efficiency of the firms and faulty appraisal methods. Given the number of factors involved and the potential errors of forecast in each case, many firms may refuse to guess the numerical implications of more qualitative factors.

Discounted Cash Flow seems to have grown up mostly in production-oriented circles. This article pleads for more thought on the pattern of cash flow where marketing is an important element in a company's business. 'Investment Appraisal,' as the term implies, is concerned with the acquisition of plant, buildings, motor vehicles etc., largely in a production connotation. But the specific problems involved in marketing get scant attention in DCF literature. [ABSTRACT FROM AUTHOR]

The article presents information on investment by simulation. Unless we suppose that any implications arising from a proposal involving large expenditure sums can be measured in money terms, the action taken upon its examination will depend on several considerations aside from financial worth. An investment in physical assets related to the introduction of a new product or service to the community will inevitably contain political, social, or safety implications that are not easily measured in terms of cash. The author notes that the carrying out of a proper financial appraisal should not be neglected, since management can only weigh the effects of the two sets of criteria when this is accomplished.