What is an Investment Project
An investment project is a detailed proposal of an expenditure of liquid resources, with the objective of taking actions that will lead to future profits.
- An investment project is made before the investment itself.
- An investment implies an expenditure of resources, but it doesn’t necessarily means that those resources are our own resources: a lot of investments are carried out by borrowing money.
- There is a temporal difference between the expenditure and the procurement of the profits. The procurement of the profits is farther away in time. This is an important fact that must be taken into account during the capital budgeting.
- The investment will try to achieve a change in future reality, like satisfying certain needs of people.
- An investment project requires careful planning and includes detailed descriptions of expenditures and incomes (sources and expected amounts). Usually, investment projects also include a profitability evaluation with measures of capital budget, like the Net Present Value (NPV) and the Internal Return Rate (IRR), along with a description of the investment risks.
Examples of investment projects
- Build a bridge that will allow people traveling from one sector of a city to another, to save traveling time.
- Build an apartment building that gives housing to 10 families.
- Buy a vessel to carry goods from China to USA and from USA to China.
- Build a hotel.
Classification of Investment Projects
- Public investment: when the capital comes from the public treasury (it can be carried out by the government of by a private company. Private investment: when the capital comes from private investors or private companies.
- According to the risk involved: high risk investment vs low risk investment.
- According to the kind of good or services it will provide: