Question 444 investment decision, corporate financial decision theory
The investment decision primarily affects which part of a business?
The investment decision is about what assets the business should buy. Managers are supposed to buy assets that increase shareholder wealth. Buying undervalued assets is the best way to do this. The business project of buying the undervalued asset and then selling it for a higher price or using it to generate cash flow would be called a positive net present value (NPV) project.
Question 446 working capital decision, corporate financial decision theory
The working capital decision primarily affects which part of a business?
Working capital, also called net working capital (NWC), is the amount of current assets less current liabilities. Working capital decisions seek to manage these accounts to avoid insolvency which is when the business cannot pay its current liabilities when they're due.
Question 445 financing decision, corporate financial decision theory
The financing decision primarily affects which part of a business?
The financing decision is about how to finance the business's assets. If there isn't enough cash to buy assets, more cash must be raised by issuing liabilities such as loans, bills or bonds or by issuing shares.
Question 447 payout policy, corporate financial decision theory
Payout policy is most closely related to which part of a business?
Payout policy is about how much to pay shareholders and in what form, if anything at all.
The firm can distribute cash to shareholders in the form of dividends which are distributed to all, or buy backs (also called repurchases) where shareholders can elect to sell their shares back to the company which then cancels those shares.
Question 443 corporate financial decision theory, investment decision, financing decision, working capital decision, payout policy
Business people make lots of important decisions. Which of the following is the most important long term decision?
The investment decision determines what assets to buy to carry on the business. If managers buy assets that fail to create enough revenue to cover costs then the business will eventually fail.
The expression 'you have to spend money to make money' relates to which business decision?
The saying 'you have to spend money to make money' alludes to the idea that you have to buy assets to generate income, which relates to the investment decision. Perhaps the saying would be better phrased as 'you have to invest money (in assets) to make money (generate income and capital gains)'.