FACTORS INFLUENCING INVESTMENT DECISIONS Flashcards
What is investment criteria
A set of guidelines against which a decision about whether or not to proceed with an investment can be made
What is financial criteria
A timescale for repayments: is the organisation short or long term focused
Minimum returns: the reward for risk to be compared to the interest rate
Accuracy of calculations: What degree of certainty do managers have in the calculations
What is non financial criteria
Economic prospects: A business may only invest if they think GDP will rise
Culture/ attitude to risk: a business may have an entrepreneurial culture that supports risk, or be risk averse
Social/ ethical considerations: A business may take the wishes of all of their stakeholders into account before proceeding with the most profitable investment
Impact on functional areas: how will each department in the business be affected by the decision?
What is risk and uncertainty
Financing the investnment: Is the source of finance proposed appropriate for the investment
Opportunity costs: What else could the compant do with the money? Is there a better alternative for investment
Market reaction: How will consumers react? Will they continue to buy tehproduct? How might competitors respond to the investment?
Unforeseen events: no business can accurately predict future outflows and revenues, so how accurately are the predictions?
WHat are corporate objectives
Corporate objectives: Will the investment make a significant contribution how the achievement of corporate objectives? How?
What is quantative data
Quantative dats is numerical information that is used to indluence investment decisions
What are the strenghts of quantitavive data
Relatively easy to put financial value on costs and revenues
Short to mediem term predictions for costs and revenues more lickely to be accurate
Predictions for investments can be linked to financial objectives i.e. will it help mimimise costs?
