IDEAS home Printed from
   My bibliography  Save this article

Capital Investments And Financial Profitability


  • Baresa, Suzana

    () (University of Rijeka, Croatia)

  • Bogdan, Sinisa

    () (University of Rijeka, Croatia)

  • Ivanovic, Zoran

    () (University of Rijeka, Croatia)


Economic life of achieving economic and financial effects of an investment opportunity presents the period in which selected investment option remains economically superior from the other alternative investment opportunity. Time period in which the investment project needs to prove its justification, presents an extremely critical factor in the profitability of the investment project, therefore, special attention must be paid to the assessment of the economic and financial time period. The aim of this study was to prove that critical factor in achieving profitability is in direct relation with economic or financial life. The results which arise from this study suggest on the fact that during analysis investor must determine financial life to achieve economic and financial effects of capital investment, because the length of the economic life does not have to match the profitability or with financial efficiency, and that is not appreciated sufficiently in practice. This paper presents examples of calculating the financial profitability of capital investment, using the residual value, ie the discounted residual value and the results of empirical studies that show the difference in preference of life effectuation of capital investment between theoreticians and practitioners in the field of capital budgeting.

Suggested Citation

  • Baresa, Suzana & Bogdan, Sinisa & Ivanovic, Zoran, 2016. "Capital Investments And Financial Profitability," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 7(1), pages 49-59.
  • Handle: RePEc:ris:utmsje:0170

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    1. Pawlina, G. & Kort, P.M., 2001. "Strategic Capital Budgeting : Asset Replacement Under Uncertainty," Discussion Paper 2001-4, Tilburg University, Center for Economic Research.
    2. Gryglewicz, Sebastian & Huisman, Kuno J.M. & Kort, Peter M., 2008. "Finite project life and uncertainty effects on investment," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2191-2213, July.
    3. Thomas Pfeiffer, 2004. "Net Present Value-Consistent Investment Criteria Based on Accruals: A Generalisation of the Residual Income-Identity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7-8), pages 905-926.
    4. Antonio E. Bernardo, 2004. "Capital Budgeting in Multidivision Firms: Information, Agency, and Incentives," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 739-767.
    5. CARLISS Y. Baldwin & Kim B. Clark, 1992. "Capabilities And Capital Investment: New Perspectives On Capital Budgeting," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 67-82.
    6. Etgar, Ran & Shtub, Avraham & LeBlanc, Larry J., 1997. "Scheduling projects to maximize net present value -- the case of time-dependent, contingent cash flows," European Journal of Operational Research, Elsevier, vol. 96(1), pages 90-96, January.
    Full references (including those not matched with items on IDEAS)

    More about this item


    net cash flow; discounting; economic life; financial life and residual value;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:utmsje:0170. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Zoran Ivanovic, PhD). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.