Increasing Shareholder Wealth Black Thursday - Capital Spending RisksOctober is a month of demons, goblins and financial risks. Many of the worst stock market crashes occurred during this month, with October 24, 1929 designated as Black Thursday. In 1929, most Americans kept their savings in banks instead of speculating in the stock market. Companies looking to raise capital and already wealthy patrons were the primary investors of the time. “If you had $1000 on 9/30/1929, it would have fallen to $108.14 by July 8, 1932, or a loss of 89.2%. To recover from such a loss, you would have to watch your portfolio go up by 825%!" (Woodard, 2006). While the stock market is just one of several factors that contribute to depression, another often overlooked asset is machinery in factories. In many cases, the condition of the equipment was old and deteriorated. Perhaps if companies had been more familiar with current capital budgeting analysis practices, they would have understood that wealth maximization depends on several factors. Fortunately, today's investors and businesses have more financial tools with which to contrast and compare capital expenditures and projects in order to achieve returns on their investments. Using standard business economic analysis, based on sound research and data, a company can easily determine the present and future value of money, thereby minimizing risks and maximizing shareholder wealth. Although there are mainly two ways to raise capital, issuing shares and borrowing money, shareholders are always interested in increasing their potential investments. When a company produces all the currently possible gadgets that the market will buy, other financial opportunities for retained earnings are considered. Capital spending takes many forms, and the ideal situation will produce a high rate of return on investment, whether based on technology upgrades or machinery to produce more gadgets, or on other monetary investments. “The rate of return rule states that organizations should invest in projects that offer a rate of return that is higher than the opportunity cost of capital, or the return that investors are currently getting from their investment in the company, without the new investment” (University of Phoenix, 2005). Using the net present value (NPV) of money, a business can mathematically calculate rates of return over time and opportunity costs. Additional financing rules also help in the analysis of capital spending (Ross, Westerfield and Jaffe, 2005).