How to Find the Net Investment

You need new machinery or vehicles for your business and need to determine how much it will really cost you. Net investment defines how much something actually costs a company, including installation and item depreciation. By calculating the net investment, a business owner or manager is able to better assess the capital requirements needed, and the overall affect of the purchase to the bottom line.

Instructions

1. Find out the cost of the item being purchased. Assume the cost of a new machine is $20,000.

2. Add any additional costs required to obtain and install the machine. Assume there is an 8 percent sales tax ($20,000 x 0.08 = $1,600), and it costs $1,200 to install the machine. The additional costs are $2,800 ($1,600 + $1,200).

3. Add the additional costs to the initial costs: $20,000 + $2,800 = $22,800.

4. Determine the depreciation value of the machine. Assume the machine has a life expectancy of 10 years, divide the total cost by 10: $22,800 / 10 = $2,280.

5. Subtract the depreciation value from the total costs: $22,800 - $2,280 = $20,520. This is the net investment.

References

• BrainMass: Capital Budgeting
• Google Docs: Excellence in Financial Management