Management of Fixed Capital
Fixed capital refers to investment in long-term assets. Management of fixed capital involves more or less allocation of firm’s capital to dissimilar projects or assets with long-term implications for the business. These decisions are called investment decisions or capital budgeting decisions and affect the growth, profitability and risk of the business in the long run. These long-term assets last for more than one year. It must be financed through long-term sources of capital such as equity or preference shares, debentures, long-term loans and retained earnings of the business.
Fixed Assets should never be financed through short-term sources. Investment in these assets would also include expenditure on acquisition, expansion, and modernization and their replacement. These decisions include purchase of land, building, plant and machinery, launching a new product line or investing in advanced techniques of production. Major expenditures such as those on advertising campaign or research and development program having long term implications for the firm are also examples of capital budgeting decisions.
