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Investment decision tools that are used by corporations

Compose a memo to the CEO explaining the investment decision tools that are used by corporations.

Use various investment decision tools.

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The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions. The firm's investment decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets. Sale of a division or business (divestment) is also as an investment decision.

Decisions like the change in the methods of sales distribution, or an advertisement campaign or research and development programs have long-term implications for the firm's expenditures and benefits, and therefore, they should also be evaluated as investment decisions. Several different procedures are available to analyze potential business investments. Some concepts are better than others when it comes to reliability but all provide enough information to get the general scope of the investment.

The five procedures that provide useful information are the Net present Value (NPV), the Payback Rule, the Discounted Payback, the Internal Rate of Return (IRR), and the PI). These procedures will help rank the projects from the greatest investment to the worst.

Thus capital budgeting has following characteristics:

The exchange of current funds for future benefits.
The funds are invested in long-term assets.
The future benefits will occur to the firm over a series of years.

Criteria of selection of Capital ...

Solution Summary

This explains the investment decision tools that are used by corporations