FINS1612 Chapter 5: Viney8e_IRM_ch05
Document Summary
Learning objective 5. 1: understand issues related to the capital budgeting investment decision: the main objective of a business corporation is the maximisation of shareholder value. In seeking to achieve this objective, a corporation will consider its investment decision (the capital budgeting process), its financing decision (the capital structure process), the management of liquidity and working capital and the distribution of profits to shareholders. Investment decisions are based on the objectives of the corporation, which state, in part, those activities that the business intends to conduct. This determines the assets required to carry out those activities: quantitative methods are used to determine business activities that should be profitable, that is, those adding to shareholder value. Two methods are net present value (npv) and internal rate of return (irr): the npv is the difference between the cost of an asset, or project, and the present value of its future returns.
