Average Investment Example
Kalia & Co want to establish a new project. Initial investment
requirement is $ 2500. Machinery costing
$ 2,000 was purchased by Kalia
and remaining $ 500 invested in working capital. At the end of project the machinery
is expected to be sold $ 500. Calculate the average investment.
Solution
Average Investment = (Highest
Investment +Lowest Investment)
2
1.
Highest Investment
The highest investment for project is $ 2,500 ($ 2,000 + $ 500)
2.
Lowest Investment
Working
Capital = $ 500
Disposal
Value = $ 500
Lowest
investment = $ 500 + $ 500 = $ 1000
3.
Average Investment
(Highest Investment
+Lowest Investment)
2
= $ 2,500 + $ 1,000
2
=3,500/2
= $ 1750
