ABSTRACT
New factory construction and industrial automation- particularly computer- integrated manufacturing (CIM), renewal of the existing production facilities, and so on- requires huge investment. The rationale of the capital investment for production facilities is judged from the standpoint of engineering economy and from the strategic viewpoint of management. Unit production cost is estimated for each proposal for investment, and an alternative associated with the least cost is chosen. If an alternative with larger cost is chosen, the difference from the least cost is called opportunity cost. The payoff period is calculated as the number of years in which the initial cost of investment, after allowing for resale of the old equipment, is all repaid by those savings. Rate-of-return is the most commonly used method of investigating the effectiveness of a capital investment for production facilities by calculating anticipated annual net profit expressed as a percentage of the capital invested.
