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
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