INVESTMENT DECISIONS TYPES

There are two types of investment decisions which are Capital Investment and Working Capital Investment decisions.

Capital Investment Decisions are also known as capital budgeting in finance. The purpose of the capital investment decisions includes allocation of the firm’s capital funds most effectively in order to ensure the best return. It is involves in large sums of money and non-routine. Thus, the effect of this decision is critical whereas it suffer many constraints. The sum of capital which an organization collects is restricted and it will get restraint on the firms’ choice down to an extent, over several project investments. Example such whether the firm should acquire a new vehicle or a new machine or to set up a new plant.

Working Capital Investment is the amount of liquid asset owned by a firm. It is the amount of money that required by the firm to pay unexpected expenses or expand its businesses. It is a more routine or scheduled form of decision. Working capital investments can be earned by grants, loans, partners and investors. This working capital investment decisions takes place on a daily basis. The effect of this decision is critical as the capital investment decisions. Examples are marketable securities and account receivables to hold within a certain period.

P/S : cc MAF253. Chapter 2 Introduction to Financial Management. 

Questions : There are two types of investment decision. State and discuss your answer. (ilearn)