Modelling capital expenditure

Abstract

This paper examines the errors in capital appraisal which result from the conventional treatment of capital expenditure on an end-of-year basis. A novel capital expenditure model is developed and validated. This model will permit the realistic, easy and cheap modelling of capital expenditure programmes and the proper representation of such expenditures in capital appraisal calculations. In addition, it is thought that the model could be of joint use to the Project Manager and Financial Controller in executing better project control.