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Financial Management

Question
CBSEENBS12004211
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Investment decision can be long-term or short-term. Explain long-term investment decision and state any two factors affecting this decision.

Solution

Long-term Investment Decision: This is referred to as the Capital Budgeting Decision. It relates to the investment in long-term assets. For example, buying a new machine. For the same purpose, the finance manager has to make a comparative study of various alternates available in the market on the basis of their cost and profitability. These decisions are very important as they affect the earning of the business over the long run.

Factors affecting Long-Term Investment Decision (Capital Budgeting Decision):

Following factors affect this decision:

(i) Cash Flows of the Project: As we know investment decision (capital budgeting decision) is related with investment in long-term assets. These assets involve both cash outflows and cash inflows over a series of years. The amount needed for investment is known as cash outflow, on the other hand, returns from the same investment is known as cash inflows. Both of these need to be analysed carefully before finalising the investment.

(ii) The Rate of Return: A project may not be profitable as compared to other. The criteria to decide the profitability of various projects is their respective rate of returns. The rate of return is calculated on the basis of expected return of the project and risk attached with it. If two projects are of the same risk class, the project having higher rate of return will be accepted.

Some More Questions From Financial Management Chapter

What are the main objectives of financial management? Briefly explain.

Or

State the primary objective of financial management.

How the wealth of shareholders can be computed?

What is meant by Financial Management?

Every manager has to take three major decisions while performing the finance function. Explain them.

Explain any six factors affecting the financing decision of a company.

Explain any six factors affecting the dividend decision of a company.

What is meant by Dividend decision? State any four factors affecting the Dividend decision.

What is meant by Financing decision? State any four factors affecting the financing decision.

 

Explain briefly the factors affecting the investment decision.

Explain, in brief, any five factors that should be taken into consideration while determining the long-term dividend policy.

Or

Explain factors affecting the dividend policy of a company.

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