"Financial management" is devoted not only to procurement of funds but also on their efficient use with the objective of maximising the owners' wealth. Funds must be allocated both to assets and activities (meaning projects and production to be undertaken). When allocations to assets are to be made, this is referred to as investment decision. In as much as projects, once completed, also create "assets", they too are covered. Investment decisions regarding short-term, or current, assets have been discussed under Unit . Long-term, or fixed, assets to be invested upon are covered under Capital Investment Decisions, also designated as capital budgeting (or capital expenditure) decisions and by other designations.
Objectives
After studying this unit, you should be able to
- understand risk and return as associated with capital investment decisions,
- evaluate investment options under both of "accept-reject" criterion and "mutually exclusive choices",
- ladder out a demand schedule and decide on capital rationing, and
- analyse project investment opportunities in consideration of their risk factors.
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