What is the purpose of capital expenditure?

What is the purpose of capital expenditure?

• A. To purchase everyday supplies
• B. To buy long-term assets
• C. To cover operational costs
• D. To pay off debts

Answer: (B)

Capital expenditure refers to the funds that a business uses to acquire, upgrade, or maintain long-term assets such as property, buildings, machinery, or equipment. This type of expenditure is critical for a company’s growth and sustainability, as it involves investments that will benefit the organization over an extended period, typically more than one year. Long-term assets acquired through capital expenditure are essential for operations and can increase production capacity or improve efficiency. This investment not only supports current operations but can also lead to future revenue generation, making it a strategic financial decision. In contrast, options related to everyday supplies, operational costs, and debt repayment refer to regular expenditures that do not contribute to a company's long-term asset base or infrastructure. These are important for maintaining day-to-day functionality but do not fall under the umbrella of capital expenditure, which is specifically focused on acquiring significant, durable assets.

Capital expenditure refers to the funds that a business uses to acquire, upgrade, or maintain long-term assets such as property, buildings, machinery, or equipment. This type of expenditure is critical for a company’s growth and sustainability, as it involves investments that will benefit the organization over an extended period, typically more than one year.

Long-term assets acquired through capital expenditure are essential for operations and can increase production capacity or improve efficiency. This investment not only supports current operations but can also lead to future revenue generation, making it a strategic financial decision.

In contrast, options related to everyday supplies, operational costs, and debt repayment refer to regular expenditures that do not contribute to a company's long-term asset base or infrastructure. These are important for maintaining day-to-day functionality but do not fall under the umbrella of capital expenditure, which is specifically focused on acquiring significant, durable assets.