Your company’s finance department pays a large upfront cost for services and equipment. The value of the services and equipment reduces over time

Your company’s finance department pays a large upfront cost for services and equipment. The value of the services and equipment reduces over time.

Which type of investment approach is the company using?

A) Operational Expenditure or Expenses (OpEx)

B) Capital Expenditure or Expenses (CapEx)

C) Return on Investment (ROI)

D) Present Value (PV)

Explanation

The company is using Capital Expenditure or Expenses (CapEx). CapEx refers to deducting 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 the CapEx also reduces over time.

Operational Expenditure or Expenses (OpEx) are items such as services or products that are being billed for and paid for as they are acquired. 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.

Return on Investment (ROI) is the difference (gain or loss) that is created relative to the amount of money that was allocated for the investment. The formula for ROI is the net profit or net loss divided by the total investment.

Present Value (PV) is the value of the future income stream that is determined on the date of valuation. The present value of an investment is equal to or less than the future value of the investment because money has interest-earning potential.

 

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