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Capital Investment without Debt

Often when deciding to implement a capital investment decision, funding through acquiring debt must be obtained. Recently the credit market has been tight to non-existent. Using the information in any external research, describe how companies are dealing with the problem of not being able to obtain loans to implement capital investment plans.

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Most of the capital investment plans are based on the future cash flows expected from a particular asset investment opportunity. Management must allocate the company's limited resources between competing opportunities. Firms which have problems with obtaining loans can deal with it generally by using equity capital. Some of the other common methods are negative cash conversion or float.

Equity investments are certified by issuing shares in the firm. Shares are issued in direct proportional to the amount of the investment and investors put cash into the company in the hope of sharing in its profits and in the hope that the value of the stock will grow. The main advantage of equity financing is that it doesn't need to be paid back. In contrast, loans taken from the banks or other forms of debt have an immediate impact on the cash flow of the companies and carry severe penalties if the payment terms are not met. Possible sources of equity financing include ...

Solution Summary

Most of the capital investment plans are based on the future cash flows expected from a particular asset investment opportunity. Management must allocate the company's limited resources between competing opportunities. Firms which have problems with obtaining loans can deal with it generally by using equity capital. Some of the other common methods are negative cash conversion or float.

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