Investment Decision

Corporate finance is the study of a business's money-related decisions, which are essentially all of a business's decisions. Despite its name, corporate finance applies to all businesses, not just corporations. The primary goal of corporate finance is to figure out how to maximize a company's value by making good decisions about investment, financing and dividends. In other words, how should businesses allocate scarce resources to minimize expenses and maximize revenues? How should companies acquire these resources - through stock or bonds, owner capital or bank loans? Finally, what should a company do with its profits? How much should it reinvest into the company, and how much should it pay out to the business's owners? This walkthrough will explore each of these business decisions and the factors affecting them in greater depth.

There are basically four types of financial decisions as described below:

1. Investment Decision: It is concerned about intelligently allocating capital to long term assets to get maximum yield in future. This activity is also known as capital budgeting. Following are the two aspects of investment decision: Evaluation of new investment in terms of profitability and Comparison of cut off rate against new investment and prevailing investment. While considering investment proposal, it is important to take into consideration both expected return and the risk involved. Investment decision not only involves allocating capital to long term assets but also involves decisions of using funds which are obtained by selling those assets which become less profitable and less productive. It is wise decision to decompose depreciated assets which are not adding value and utilize those funds in securing other beneficial assets.

Long term investment example:  Today's capital investments generate future returns. Often the returns come in the distant future. Boeing committed over $10 billion to design, test, and manufacture the Dreamliner. It did so...