ShmoopTube

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And finance Allah shmoop What is net investment Oh well

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Net investment is an important expense for trap He's artists

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and for butterfly catchers it's also a term in finance

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that refers to the amount of money a company spends

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on new capital investments You know stuff like real estate

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or new factory construction and fresh equipment purchases Well the

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Net part means it leaves out any spending that goes

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to replace old stuff It's gotten you know run down

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So let's say you own a factory that makes meat

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flavored soda Amazingly you had a big hit with your

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diet pastrami flavor Last year it left you with some

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money to spend well The property next door to your

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factory contains an old pet cemetery You want to build

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an extension to your facility to ramp up production of

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your new lemon lime bacon flavor First step by the

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pet cemetery from that spooky guy in overalls who owns

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it that cost you a million dollars Second you have

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to relocate all the rovers and Coco's and Mr Peabody's

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currently you know interred there another million box time to

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build the new plant That's eight million there plus the

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machines and other equipment at another two million or so

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All right well separately you need to replace some run

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down equipment at the original plant Your salami extractor is

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on its last legs and one of your venison carbonate

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er's broke down So there are going to cost the

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further three million bucks or so to replace So all

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told you've spent fifteen million dollars in investment in capital

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assets That's your gross investment figure But three million of

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that fifteen million was to replace old stuff that had

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worn down You'd already accounted for it on a regular

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basis through depreciation So back that three million box out

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which leaves you twelve million dollars in net investment Net

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investment represents the amount your company spends on brand new

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investment Both fixed investment on physical capital and inventory investment

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yet includes inventory well to calculate figure take gross investment

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or the spending on everything In this case it's fifteen

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million gross Then you subtract replacement investment like the amount

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to replace capital goods that have depreciated like three million

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box In your case the salami extractor in the venison

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carbonate er right those things once you pull out that

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replacement spending Then you're left with the twelve million dollars

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in net investment It also leaves you with a factory

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that relies on meat processing built on an old add 00:02:28.77 --> [endTime] so much very good luck with that

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