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|Capital Expenditure (CapEx)
The term has two distinct meanings.
1. New Valuation DefinitionAn expenditure used to create new assets or to increase the capacity of existing assets beyond their original design capacity or service potential. CAPEX therefore increases the value of an asset and may be considered equivalent to incremental cost. The total investment needed to complete a project and bring it to operational status, after which there will be recurring operational or running costs. See also: upgrade.
2. Cost Threshold DefinitionThe cost of maintenance, repair, or replacement that has the following attributes:
Examples of Capital Expenditures:
Listed below are some examples of typical capital expenditures:
Attributes of Capital Expenses:
Capital costs generally have the following attributes:
Analysis of Capital Expenses:
The following asset management concepts provide further insight into capital expenses:
total cost of ownership (TCO) of a building.
Identification of Capital Expenses and Needs:
Classification of Capital Expenditures:
There are a variety of different ways that Capex is determined by different organization or in different jurisdictions. Listed below are the two primary methods.
Financing of Capital Expenses:
There are three primary sources of funds for capital expenses:
Management of Capital Expenses:
Some of the complexities associated with classification, management and financing of capital expenses are address through the following principles:
Fig. The relationship and interdependencies between CapEx, OpEx and TotEx.
Fig. CapEx distributed across the different systems of a facilty or across the asset portfolio.
Fig. Exterior painting and sealant renewal is an example of a capital expense.
Fig. Roof renewal is typically a large capital expense carried out every 15-25 years.
Fig. Capital costs shown on a 30-year strategic plan as purple bars. That is, the distribution of capital costs over time.
Fig. I. Care is trying to ensure that inflows match outflows, but this requires agreement on long-range stewardship, cooperation and teamwork.
Fig. Pie chart to illustrate the distribution of capital costs across the different systems of a building.
Fig. Capital expenses shown on a cash flow table to illustrate the inflows and outflows of money over time.
Fig. Exterior painting project Fig. Roof renewal project.
Fig. Repiping project. Fig. Pool resurfacing project.
Fig. I. Care making a futile attempt to remove a capital expense from the tactical plan.
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