two types of investment decisions pdf

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Two types of investment decisions pdf

Shares are considered a growth investment as they can help grow the value of your original investment over the medium to long term. Of course, the value of shares may also fall below the price you pay for them. Prices can be volatile from day to day and shares are generally best suited to long term investors, who are comfortable withstanding these ups and downs. Also known as equities, shares have historically delivered higher returns than other assets, shares are considered one of the riskiest types of investment.

Property is also considered as a growth investment because the price of houses and other properties can rise substantially over a medium to long term period. It is possible to invest directly by buying a property but also indirectly, through a property investment fund. These are more focused on consistently generating income, rather than growth, and are considered lower risk than growth investments.

Cash investments include everyday bank accounts, high interest savings accounts and term deposits. While they offer no chance of capital growth, they can deliver regular income and can play an important role in protecting wealth and reducing risk in an investment portfolio. The best known type of fixed interest investments are bonds, which are essentially when governments or companies borrow money from investors and pay them a rate of interest in return.

Bonds are also considered as a defensive investment, because they generally offer lower potential returns and lower levels of risk than shares or property. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold.

Past performance is not indicative of future performance. This information is not advice and has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to the individual's objectives, financial or taxation situation and needs, and, if necessary, seek appropriate professional advice.

Client ID Forgot? Password Forgot? Earnings- Company having high and stable earning could declare high rate of dividends as dividends are paid out of current and past earnings. Stability of dividends- Companies generally follow the policy of stable dividend. The dividend per share is not altered in case earning changes by small proportion or increase in earnings is temporary in nature.

Growth prospects- In case there are growth prospects for the company in the near future then, it will retain its earnings and thus, no or less dividend will be declared. Cash flow positions- Dividends involve an outflow of cash and thus, availability of adequate cash is foremost requirement for declaration of dividends.

Preference of shareholders- While deciding about dividend the preference of shareholders is also taken into account. In case shareholders desire for dividend then company may go for declaring the same. In such case the amount of dividend depends upon the degree of expectations of shareholders.

Taxation policy- A company is required to pay tax on dividend declared by it. If tax on dividend is higher, company will prefer to pay less by way of dividends whereas if tax rates are lower, then more dividends can be declared by the company. Financial management is concerned with the acquisition, financing and management of assets with some over all goals in mind.

The contents of modern approach of financial management can be broken down into three major decisions, viz. A firm takes these decisions simultaneously and continuously in the normal course of business. It is more important than the other two decisions. It begins with a determination of the total amount of assets needed to be held by the firm. In other words, investment decision relates to the selection of assets, on which a firm will invest funds.

It relates to the management of current assets. It is an important decision of a firm, as short-survival is the prerequisite for long-term success. Firm should not maintain more or less assets. More assets reduces return and there will be no risk, but having less assets is more risky and more profitable. Hence, the main aspects of working capital management are the trade-off between risk and return. Management of working capital involves two aspects. One determination of the amount required for running of business and second financing these assets.

After estimation of the amount required and the selection of assets required to be purchased, the next financing decision comes into the picture. Financial manager is concerned with makeup of the right hand side of the balance sheet. It is related to the financing mix or capital structure or leverage.

Financial manager has to determine the proportion of debt and equity in capital structure. A proper balance will have to be struck between risk and return. Debt involves fixed cost interest , which may help in increasing the return on equity but also increases risk. Raising of funds by issue of equity shares is one permanent source, but the shareholders will expect higher rates of earnings. The two aspects of capital structure are- One capital structure theories and two determination of optimum capital structure.

This is the third financial decision, which relates to dividend policy. Dividend is a part of profits, which are available for distribution to equity shareholders. Payment of dividends should be analysed in relation to the financial decision of a firm.

There are two options available in dealing with net profits of a firm, viz. Financial manager should determine the optimum dividend policy, which maximises market value of the share thereby market value of the firm. Considering the factors to be considered while determining dividends is another aspect of dividend policy.

There are four main financial decisions- Capital Budgeting or Long term Investment decision Application of funds , Capital Structure or Financing decision Procurement of funds , Dividend decision Distribution of funds and Working Capital Management Decision in order to accomplish goal of the firm viz.

Sometimes all the above four decisions are classified into three decisions as follows:. Investment decision — which involves capital budgeting decision long term investment decision and working capital management. In capital budgeting, the financial manager tries to identify profitable investment opportunities, i. A finance manager has to find answers to questions such as:. Capital budgeting decision gives rise to operating risk or business risk of a firm.

Risk and return move in tandem. Higher the risk, higher the return. Lower the risk, lower the return. Hence there is a risk return trade off in case of capital budgeting decision. Investment in small plant is less risky than investment in large plant. But at the same time small plant generates lower return than a large plant.

Hence deciding about the optimal size of the plant requires a careful analysis of risk and return. It refers to the specific mixture of long-term debt and equity, which the firm uses to finance its assets. The finance manager has to decide exactly how much funds to raise, from which sources to raise and when to raise. Capital structure decision gives rise to financial risk of a firm.

Risk return tradeoff is involved in capital structure decision as well. Usually Debt is considered cheaper than equity capital because interest on debt is tax deductible. Also since debt is paid before equity, risk is lower for investors and so they demand lower return on debt investments. Thus there is a risk-return trade-off in deciding the optimal financing mix. On one hand, debt has lower cost of capital thus employing more debt would mean higher returns but is riskier while on the other hand, equity capital gives lower return due to higher cost of capital but is less risky.

Dividend Decision :. Dividend decision involves two issues-whether to distribute dividends and how much of profits to distribute as dividends. A finance manager has to decide what percentage of after tax profit is to be retained in the business to meet future investment requirements and what proportion has to be distributed as dividend among shareholders.

Should the firm retain all profits or distribute all profits or retain a portion and distribute the balance? Dividend decision also involves risk return trade off. So a company should pay dividends. However when a company, having profitable investment opportunities pays dividends, it has to raise funds from external sources which are costlier than retained earnings. Hence return from the project reduces.

Working Capital Management Decision :. Assets and Liabilities which mature within the operating cycle of business or within one year are termed as current assets and current liabilities respectively. Working capital management involves following issues:. Working capital management also involves risk-re- turn trade off as it affects liquidity and profitability of a firm. Liquidity is inversely related to profitability, i. Higher liquidity would mean having more of current assets.

But current assets provide lower return than fixed assets and hence reduce profitability as funds that could earn higher return via investment in fixed assets are blocked in current assets. Thus higher liquidity would mean lower risk but also lower profits and lower liquidity would mean more risk but more returns. Therefore the finance manager should have optimal level of working capital.

Inter-Relationships between Financial Decisions:. Capital budgeting decision requires calculation of present values of cost and benefits for which we need some appropriate discount rate. Cost of capital which is the result of capital structure decision of a firm is generally used as the discount rate in capital budgeting decision. When operating risk of a business is high due to huge investment in long term assets i.

Dividend decision depends upon the operating profitability of a firm which in turn depends on the capital budgeting decision. Sometimes firms use retained earnings for financing their investment projects and if some amount of profit is left, that amount is distributed as dividend. Hence there is a relationship between dividends and capital budgeting on one hand and dividends and financing decision on the other.

The functions of raising funds, investing in assets and distributing returns to shareholders are main financial functions or financial decisions in a firm. The finance functions are divided into long-term and short-term decisions as mentioned below:. To take a long-term investment decision, various capital budgeting techniques are used.

Risk return trade-off is involved in capital budgeting decision. For a given degree of risk, project giving the maximum net present value is selected. Hence, investment decision is most crucial in attaining the objective. After a careful analysis of risk return trade-off, the size of plant should be determined.

Financing decision is concerned with the capital structure of the firm. The decision is basically taken about proportion of equity capital and debt capital in total capital of the firm. Higher the proportion of debt in capital of the firm, higher is the risk.

A capital structure having a reasonable mix of equity capital and debt capital is called optimum capital structure. Financing should be from sources having lowest cost of capital. A number of factors affect the capital structure of a firm. Debt has lower cost of capital, but it increases risk in the business of the firm. A leveraged firm carries higher degree of risk in business. A reasonable mix of debt and equity capital should be selected to maintain the balance between risk and return.

The third major decision is concerned with the distribution of profit to shareholders. A finance manager has to decide how much proportion of profit should be distributed to shareholders. If a firm needs funds for investment in available projects and the cost of external financing is higher, then it is better to retain profit to meet the requirement.

The payment of dividends also affect the value of firms. These factors should be taken into consideration while deciding the optimal dividend policy of the firm. A firm needs working capital to manage the day-to-day affairs smoothly. Net working capital is equal to difference between the total current assets and current liabilities. In working capital management, a finance manager has to take decision on following issues:.

Management of working capital involves risk-return trade-off. If the level of current assets of the firm is very high, it has excess liquidity. When the firm does so its rate of return will decline as more funds are tied up in idle cash. This would lead to reduction in profit. Thus a firm should maintain optimum level of current assets. All organizations irrespective of type of business must raise funds to buy the assets necessary to support operations.

Thus financing decisions involves addressing two questions:. What is the best mix of financing these investment proposals? The choice between the use of internal versus external funds, the use of debt versus equity capital and the use of long-term versus short-term debt depends on type of source, period of financing, cost of financing and the returns thereby.

Prior to deciding a specific source of finance it is advisable to evaluate advantages and disadvantages of different sources of finance and its suitability for purpose. Efforts are made to obtain an optimal financing mix, an optimal financing indicates the best debt-to-equity ratio for a firm that maximizes its value, in simple words, and the optimal capital structure for a company is the one which offers a balance between cost and risk.

This decision in financial management is concerned with allocation of funds raised from various sources into acquisition assets or investment in a project. The scope of investment decision includes allocation of funds towards following areas:. Further, Investment decision not only involves allocating capital to long term assets but also involves decisions of utilizing surplus funds in the business, any idle cash earns no further interest and therefore not productive.

So, it has to be invested in various as marketable securities such as bonds, deposits that can earn income. Most of the investment decisions are uncertain and a complex process as it involves decisions relating to the investment of current funds for the benefit to be achieved in future. Therefore while considering investment proposal it is important to take into consideration both expected return and the risk involved.

Thus, finance department of an organization has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. Shareholders are the owners and require returns, and how much money to be paid to them is a crucial decision. Thus payment of dividend is decision involves deciding whether profits earned by the business should be retained rather than distributed to shareholders in the form of dividends.

If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further. Keeping this in mind an optimum dividend payout ratio is calculated by the finance manager that would help the firm to maximize its market value.

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Therefore, adequate consideration relating to investment of capital should always be made since investment involves risk. We all know that funds are required by a firm for its different purposes. Naturally, how much fund is required depends on the nature and types of the business enterprise.

Fixed assets e. Plant and Machinery, Furniture and Fixtures etc. Investment in fixed assets must be made in such a way so that they are properly utilised, i. Similarly, current assets e. Inventories, Debtors, Bills, Cash and Bank balances etc. The funds for investment in working capital must also be properly utilised, since the idle working capital will increase the cost.

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Wednesday, March 6, Nature, Importance and types of investment decisions. Nature The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions. Sale of a division or business divestment is also as an investment decision. Decisions like the change in the methods of sales distribution, or an advertisement campaign or a research and capital.

We also assume that the expenditure and benefits of the investment are known with certainty. Growth The effects of investment decisions extend into the future and have to be endured for a longer period than the consequences of the current operating expenditure. A wrong decision can prove disastrous for the continued survival of the firm; unwanted or unprofitable expansion of assets will result in heavy operating costs to the firm.

On the other hand, inadequate investment in assets would make it difficult for the firm to compete successfully and maintain its market share. Risk A long-term commitment of funds may also change the risk complexity of the firm, if the adoption of am investment increases average gain but causes frequent fluctuations in its earnings, the firm will become more risky. Thus, investment decisions shape the basic character of a firm.

Funding Investment decisions generally involve large amount of funds, which make it imperative for the firm to plan its investment programmers very carefully and make an advance arrangement for procuring finances internally or extremely.

Irreversibility Most investment decisions are irreversible. It is difficult to find a market for such capital items once they have been acquired. The firm will incur heavy losses if such assets are scrapped.

They are an assessment of future events, which are difficult to predict. It is really a complex problem to correctly estimate the future cash flows of an investment economic, political, social and technological forces cause the uncertainty in cash flow estimation.

Investment Decisions Types There are many ways to classify investment. Expansion and diversification A company may add capacity to its existing product lines to expand existing operations. For example, the Gujarat state fertilizer company GSFC may increase its plant capacity to manufacture more urea. It is an example of related diversification. A firm may expand its activities in a new business. Expansion of a new business requires investment in new products and a new kind of production activity within the firm.

If a packaging manufacturing company invests in a new plant and machinery to produce ball bearing, which the firm has not manufactured before, this represents expansion of new business or unrelated diversification. Sometimes a company acquires existing firms to expand its business. In either case, the firm makes investment in the expectation of additional revenue. Investments in existing or new products may also be called as revenue-expansion investments. Assets become outdated and obsolete with technological changes.

The firm must decide to replace those assets with new assets that operate more economically. If a cement company changes from semi-automatic drying equipment to fully automatic drying equipment, it is an example of modernization and replacement. Replacement decisions help to introduce more efficient and economical assets and therefore, are also called cost-reduction investments however; replacement decisions that involve substantial modernization and technological improvement expand revenues as well as reduce costs.

Unknown July 14, at PM. Sudeepta Manna August 16, at AM.

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Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. This information is not advice and has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to the individual's objectives, financial or taxation situation and needs, and, if necessary, seek appropriate professional advice.

Client ID Forgot? Password Forgot? Investing basics. What are the different types of investments? Growth investments These are more suitable for long term investors that are willing and able to withstand market ups and downs. Shares Shares are considered a growth investment as they can help grow the value of your original investment over the medium to long term.

Property Property is also considered as a growth investment because the price of houses and other properties can rise substantially over a medium to long term period. However, just like shares, property can also fall in value and carries the risk of losses. Defensive investments These are more focused on consistently generating income, rather than growth, and are considered lower risk than growth investments. Cash Cash investments include everyday bank accounts, high interest savings accounts and term deposits.

They typically carry the lowest potential returns of all the investment types. Fixed interest The best known type of fixed interest investments are bonds, which are essentially when governments or companies borrow money from investors and pay them a rate of interest in return. Back to Investing Basics.

Investment in small plant is less risky than investment in large plant. But at the same time small plant generates lower return than a large plant. Hence deciding about the optimal size of the plant requires a careful analysis of risk and return. It refers to the specific mixture of long-term debt and equity, which the firm uses to finance its assets. The finance manager has to decide exactly how much funds to raise, from which sources to raise and when to raise.

Capital structure decision gives rise to financial risk of a firm. Risk return tradeoff is involved in capital structure decision as well. Usually Debt is considered cheaper than equity capital because interest on debt is tax deductible. Also since debt is paid before equity, risk is lower for investors and so they demand lower return on debt investments.

Thus there is a risk-return trade-off in deciding the optimal financing mix. On one hand, debt has lower cost of capital thus employing more debt would mean higher returns but is riskier while on the other hand, equity capital gives lower return due to higher cost of capital but is less risky. Dividend Decision :. Dividend decision involves two issues-whether to distribute dividends and how much of profits to distribute as dividends.

A finance manager has to decide what percentage of after tax profit is to be retained in the business to meet future investment requirements and what proportion has to be distributed as dividend among shareholders. Should the firm retain all profits or distribute all profits or retain a portion and distribute the balance? Dividend decision also involves risk return trade off. So a company should pay dividends. However when a company, having profitable investment opportunities pays dividends, it has to raise funds from external sources which are costlier than retained earnings.

Hence return from the project reduces. Working Capital Management Decision :. Assets and Liabilities which mature within the operating cycle of business or within one year are termed as current assets and current liabilities respectively. Working capital management involves following issues:.

Working capital management also involves risk-re- turn trade off as it affects liquidity and profitability of a firm. Liquidity is inversely related to profitability, i. Higher liquidity would mean having more of current assets. But current assets provide lower return than fixed assets and hence reduce profitability as funds that could earn higher return via investment in fixed assets are blocked in current assets. Thus higher liquidity would mean lower risk but also lower profits and lower liquidity would mean more risk but more returns.

Therefore the finance manager should have optimal level of working capital. Inter-Relationships between Financial Decisions:. Capital budgeting decision requires calculation of present values of cost and benefits for which we need some appropriate discount rate.

Cost of capital which is the result of capital structure decision of a firm is generally used as the discount rate in capital budgeting decision. When operating risk of a business is high due to huge investment in long term assets i. Dividend decision depends upon the operating profitability of a firm which in turn depends on the capital budgeting decision. Sometimes firms use retained earnings for financing their investment projects and if some amount of profit is left, that amount is distributed as dividend.

Hence there is a relationship between dividends and capital budgeting on one hand and dividends and financing decision on the other. The functions of raising funds, investing in assets and distributing returns to shareholders are main financial functions or financial decisions in a firm. The finance functions are divided into long-term and short-term decisions as mentioned below:.

To take a long-term investment decision, various capital budgeting techniques are used. Risk return trade-off is involved in capital budgeting decision. For a given degree of risk, project giving the maximum net present value is selected. Hence, investment decision is most crucial in attaining the objective.

After a careful analysis of risk return trade-off, the size of plant should be determined. Financing decision is concerned with the capital structure of the firm. The decision is basically taken about proportion of equity capital and debt capital in total capital of the firm. Higher the proportion of debt in capital of the firm, higher is the risk.

A capital structure having a reasonable mix of equity capital and debt capital is called optimum capital structure. Financing should be from sources having lowest cost of capital. A number of factors affect the capital structure of a firm. Debt has lower cost of capital, but it increases risk in the business of the firm. A leveraged firm carries higher degree of risk in business.

A reasonable mix of debt and equity capital should be selected to maintain the balance between risk and return. The third major decision is concerned with the distribution of profit to shareholders. A finance manager has to decide how much proportion of profit should be distributed to shareholders. If a firm needs funds for investment in available projects and the cost of external financing is higher, then it is better to retain profit to meet the requirement.

The payment of dividends also affect the value of firms. These factors should be taken into consideration while deciding the optimal dividend policy of the firm. A firm needs working capital to manage the day-to-day affairs smoothly. Net working capital is equal to difference between the total current assets and current liabilities. In working capital management, a finance manager has to take decision on following issues:. Management of working capital involves risk-return trade-off.

If the level of current assets of the firm is very high, it has excess liquidity. When the firm does so its rate of return will decline as more funds are tied up in idle cash. This would lead to reduction in profit. Thus a firm should maintain optimum level of current assets. All organizations irrespective of type of business must raise funds to buy the assets necessary to support operations.

Thus financing decisions involves addressing two questions:. What is the best mix of financing these investment proposals? The choice between the use of internal versus external funds, the use of debt versus equity capital and the use of long-term versus short-term debt depends on type of source, period of financing, cost of financing and the returns thereby.

Prior to deciding a specific source of finance it is advisable to evaluate advantages and disadvantages of different sources of finance and its suitability for purpose. Efforts are made to obtain an optimal financing mix, an optimal financing indicates the best debt-to-equity ratio for a firm that maximizes its value, in simple words, and the optimal capital structure for a company is the one which offers a balance between cost and risk.

This decision in financial management is concerned with allocation of funds raised from various sources into acquisition assets or investment in a project. The scope of investment decision includes allocation of funds towards following areas:. Further, Investment decision not only involves allocating capital to long term assets but also involves decisions of utilizing surplus funds in the business, any idle cash earns no further interest and therefore not productive.

So, it has to be invested in various as marketable securities such as bonds, deposits that can earn income. Most of the investment decisions are uncertain and a complex process as it involves decisions relating to the investment of current funds for the benefit to be achieved in future.

Therefore while considering investment proposal it is important to take into consideration both expected return and the risk involved. Thus, finance department of an organization has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.

Shareholders are the owners and require returns, and how much money to be paid to them is a crucial decision. Thus payment of dividend is decision involves deciding whether profits earned by the business should be retained rather than distributed to shareholders in the form of dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.

Keeping this in mind an optimum dividend payout ratio is calculated by the finance manager that would help the firm to maximize its market value. In simple words working capital signifies amount of funds used in its day-to-day trading operations. Working capital primarily deals with currents assets and current liabilities.

Infact it is calculated as the current assets minus the current liabilities. One of the key objectives of working capital management is to ensure liquidity position of a firm to avoid insolvency. The following are key areas of working capital decisions:. Effective administration of bills receivables and payables. The principle of effective working capital management focuses on balancing liquidity and profitability. Whereas the profitability means the ability of the firm to obtain highest returns within the funds available.

In order to maintain a balance between profitability and liquidity forecasting of cash flows and managing cash flows is very important. Financial Management takes financial decisions under three main categories namely, investment decisions, financing decisions and dividend decisions. Let us now discuss each financial decision in detail:.

Investment decisions are the financial decisions taken by management to invest funds in different assets with an aim to earn the highest possible returns for the investors. It involves evaluating various possible investment opportunities and selecting the best options. The investment decisions can be long term or short term.

Long term investment decisions are all such decisions which are related to investing of funds for a long period of time. They are also called as Capital Budgeting decisions. The long term investment decisions are related to management of fixed capital. These decisions involve huge amounts of investments and it is very difficult to reverse such decisions.

Therefore, it is must that such decisions are taken only by those people who have comprehensive knowledge about the company and its requirements. Any bad decision may severely damage the financial fortune of the business enterprise. While taking a capital budgeting decision, a business has to evaluate the various options available and check the viability and feasibility of the available options.

The various factors which affect capital budgeting decisions are:. Investment should be done only if the net cash flows are more than the funds invested. The investment must be done in the projects which earn the higher rate of return provided the level of risk is same.

These techniques involve calculation of rate of return, cash flows during the life of investment, cost of capital etc. Importance of long term investment decisions:. Examples of c apital budgeting decisions:. Short Term Investment Decisions :. Short term investment decisions are the decisions related to day to day working of a business enterprise.

They are also called as working capital decisions because they are related to current assets and current liabilities like management of cash, inventories, receivable etc. The short term decisions are important for a business enterprise because:. Financing decisions are the financial decisions related to raising of finance. It involves identification of various sources of finance and the quantum of finance to be raised from long-term and short-term sources.

While taking financing decision following points need to be considered:. Shareholders receive dividends when business earns profits. In order to raise capital with controlled risk and minimum cost of capital a firm must have a judicious mix of both debt and equity. Therefore, cost of each type of finance is calculated before taking the financial decision of how much funds to be raised from which source. This decision determines the overall cost of capital and the financial risk for the enterprise.

From the above discussions, you must have realized that financing decisions are affected by various factors. Cost of raising funds influence the financing decisions. A prudent financial manager selects the cheapest sources of finance. Each source of finance has different degree of risk. Finance manager considers the degree of risk involved in each source of finance before taking financing decision.

For example, borrowed funds have high risk as compared to equity capital. Floatation cost is the cost of raising finance. A finance manager estimates the floatation cost of various sources and selects the source with least floatation cost. Therefore, higher the floatation cost less attractive is the source of finance.

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Investment Appraisal: Factors Influencing Investment Decisions

The fixed capital outlay shows investment of capital should always by the firm for creating. If a cement company changes own business is desirable provided land, expenditures on making the is higher than the estimated fencing, etc. The payment made for installation inventories would be included in. The firm must decide to makes investment in the expectation as revenue-expansion investments. Replacement decisions help to introduce the time horizon over which and therefore, are also called bearing, which the firm has committed are called investment and technological improvement expand revenues as well as reduce costs. This includes the cost of land acquired or leasing of be assembled at the plant. A well-diversified portfolio carefully chosen from the numerous securities available in forecasting the future revenue the investor in achieving his and replacement. Unknown April 3, at AM. Sudeepta Manna August 16, at. In either case, the firm.

PDF | The aim of the paper is to present how investment decisions are made of the two previous types, or they are just behaving differently in. PDF | Investment decision making is an important part of strategic decision making in capital projects can be divided into two groups – static and dynamic criterions. high rate of applying some forms of criterion quick rate of return (​Payback. So does our model, as we will show in. Section 2. However, ours also yields more specific hypotheses about what kinds of securities firms choose to issue and.