Finance
Corporate or Business Finance is basically the methodology of allocating financial resources, with a financial value, in an optimal manner to maximize the wealth of a business enterprise. There are three major decisions to be made in this allocation process: capital budgeting, financing, and dividend policy. Capital budgeting is the decision regarding the choice of which investments are to be made with the resources that have been brought into the business or earned and retained by the business. The choice depends on the returns to be made from the investment exceeding the cost of capital. The method used to do this is the discounted time-value of money of the cash flow from the investment. This value is the internal rate of return (IRR), a measure of return on investment. When the IRR exceeds the required return, which is equal to the cost of the funds invested—see weighted average cost of capital, below—then the investment should be made. If such a required return is used as the discount rate, then that is the same as saying the investment will yield a positive net present value (NPV). If there are two or more investments that can be made, but they are mutually exclusive, then they must be ranked; and the one with the highest NPV should be chosen.
This is a free page. This page contains 201 words. This
article contains 3,235 words (approx. 11 pages at 300
words per page).
Read the rest of this Article with our Finance Access Pass.
