Your company needs to purchase cloud services. They do not want upfront costs, rather paying for the services as they use them.

Your company needs to purchase cloud services. They do not want upfront costs, rather paying for the services as they use them.

Which type of investment approach is the company using?

A) Operational Expenditure or Expenses (OpEx)

B) Cost-Benefit Ratio CBR

C) Capital Expenditure or Expenses (CapEx)

D) Future Value (FV)

Explanation

You would choose Operational Expenditure or Expenses (OpEx). OpEx are items such as services or products that are being billed for and paid for now. OpEx are expenses that can be deducted from your tax bill in the same year. Unlike CapEx, which is an upfront cost, with OpEx you pay for a service or product as you consume it.

You would not choose Capital Expenditure or Expenses (CapEx). CapEx allows you to deduct the expense of physical infrastructure from your tax bill. CapEx is marked down as an asset on the balance sheet and is viewed as an investment. This upfront cost is treated as an asset and will depreciate over time, thus the value of CapEx reduces over time.

You would not choose Cost-Benefit Ratio (CBR). CBR is defined by the net present value of the investment divided by the initial investment cost. The ratio is positive when the projected revenue is more than the projected costs. The ratio is negative when the projected revenue is less than the projected costs.

You would not choose Future Value (FV). FV is the value that investment is worth at a future date.

 

Objective:

Cloud Computing Concepts

Sub-Objective:

Describe the benefits and considerations of using cloud services

References:

Azure > Cloud Adoption Framework > Strategy > Examples of fiscal outcomes

Investopedia > The Difference Between an Operating Expense vs. a Capital Expense