2 pros and 2 cons of a business applying different capital budgeting techniques when it is faced with making wealth-maximizing decisions around investing corporate funds. 1 consequence of a business that apply a single technique to all corp investmen
PROS: 1. Diversification from market risk, i.e. pricing and valuation, 2. Indicates management security with business operations and finances when reinvesting capital back into company, i.e. share buybacks.
CONS: 1. Requires knowledge of risk profiles of different asset classes, 2. Corporate assets may be allocated to narrow investment alternatives which prevent maximization of ROI.
SINGLE INVESTMENT TECHNIQUE CONSEQUENCES?: 1. Subject to unhedged interest rate risk, 2. Liquidity risk, i.e. inability to access spendable funds due to transaction delays, security maturities, etc.
Dec 19th, 2014
Are you studying on the go? Check out our FREE app and post questions on the fly!