Investment Decisions
Typically, investment decisions entail decisions made by top-level management or investors concerning capital to be deployed in investment opportunities. Investment decision also involves selecting the type of assets in which the money will be invested by a company (Dhankar, 2019). Moreover, it entails the determination of when, how, where, and the funds to spend or acquire debt in the pursuit of making a profit. Usually, an investment decision is as a result of an agreement between an investor and his or her investment advisors.
Example of Investment decision:
An example is an investment in plant and machinery typically after analyzing the returns on such an investment. Mainly, it involves original cost excluding the land and building as well as products specified by the ministry of small scale industries vide (Dhankar, 2019). Consequently, by increasing investment in hardware, the firm can acquire and obtain more effective plant and equipment, a vital form of substitution. Investment in plant and machinery provides a resource above and over typical banking facility and in that regard, becomes an imperative source of funding that does not only provide significant cash flow to a firm but also tax benefits. Investing in plant and machinery is essential is as it influences the long-term earnings of the firm.
Financing decision:
This is an imperative decision made by the financial managers relating to the financing mix of a firm (Dhankar, 2019). Primarily, it involves borrowing as well as the allocation of funds needed for investment decisions.
Example of financing decision:
Maintaining the debt-equity ratio is an example of a financing decision. An increase in revenue can help maintain the ratio Dhankar, 2019). As the sales rises, the firm needs to reinvest the funds by either paying down debt or adding assets. This results in equity which in turn keeps equity or debt ration down.
Question 2
Capital market is one of the financial markets in which securities of various firms are traded. It is a principal source of long term investments (Aggarwal, 2017). Typically, it is done by firms in the pursuit of raising capital from the public. Capital markets channel the wealth of savers to individuals who can use it for long term productivity, for instance, governments or firms making long-term investments. There are two types of capital markets: secondary markets and primary markets. The secondary market mainly deals with the exchange of either previously or existing issued securities. In that regard, investors typically trade the previously issued securities without issuing the firms’ involvement. Again, investors trade among themselves. Primary markets mainly deal with the trade of new issues of stocks as well as other securities (Aggarwal, 2017). Public sector institutions, governments, or firms can obtain funding via the sale of a bond issue or new stock. This is normally done via a syndicate of securities dealers. Examples of the primary market include preferential allotment and private placement. In preferential allotment, shares are offered to select investors at a special price not available to the public while in a private placement, firms sell directly to significant investors, for instance, hedge funds and shares are not available to the general public.