Академический Документы
Профессиональный Документы
Культура Документы
1. Financial Decisions
2. Investment Decisions
3. Dividend Decisions
Investment Decisions:
The business can either finance from its shareholder funds which
can be subdivided into equity share capital, preference share
capital and the accumulated profits.
Profit Maximisation
A financial action that has a positive NPV creates wealth for shareholders and
therefore is desirable
A financial action resulting in negative NPV should be rejected since it
would destroy shareholders wealth
Between mutually exclusive projects, the one with the highest NPV
should be adopted.NPV’s of a firm projects are additive in nature. That is
NPV(A)+ NPV(B) = NPV(A+B).
Optimum utilization.
Drawbacks of Profit Maximization
It is vague conceptually.
It considers risk.
To ensure adequate returns to the shareholders which will depend upon the earning
capacity, market price of the share, expectations of the shareholders.
To ensure optimum funds utilization. Once the funds are procured, they should be
utilized in maximum possible way at least cost.
To ensure safety on investment, i.e, funds should be invested in safe ventures so that
adequate rate of return can be achieved.