Capital Risk

Take a risk. Get a reward. That's the dance of the capital markets limbo.

You worked hard to accumulate your own capital, which is then used for investment in your future. Take a lot of risk, and the capital could all but disappear in the limbo (how low can you go?), or it can return some huge swonk of dough. Had you invested $10,000 in Amazon two weeks after its IPO, today that'd be worth some $50 million.

Capital is risked 'everywhere'...stocks, real estate, commodities, bonds, etc. Any type of investment you make will come with a disclosure that you are assuming capital risk when you buy the securities. Think: Caveat Emptor.

Companies also risk their capital any time they make an investment in new equipment, new buildings, or a new product introduction. Analyses are done to determine the return on investment. Or, in other words, will the capital spent result in higher sales or other benefits? They need to determine the minimum return that a company expects to earn when investing in a project.
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We Design Anything Inc. wants to expand their product offerings to include 3-D printing. They need to predict the amount of capital required to buy the 3-D printer and expand their current space. The capital they decide to risk totals, say, $50,000 that can be paid over 5 years. The sales people project they could sell $40,000 worth of 3-D products per year, generating $20,000 in profits. So if they are correct, We Design Anything will probably green light the purchase.

Assuming zero cost of capital (which you shouldn't do, but we'll do here, for simplicity's sake), then the company makes back all of its capital outlay in just 2 1/2 years. If you added in very high cost of capital, maybe it'd take three years to make all the dough back. Regardless, this purchase feels like a no brainer. So...maybe the next printer can print a brain. (And then give out 300 to Congress.)