Corporate Finance

Investment
 Investment is uses of fund/ capital to
obtain future return.
 Investment Decision

- is a commitment of funds to assets

for a particular period with an
anticipation of receiving larger
cashflow in the future.
Funds
 Cash
 Equity
 Loans
Assets
 FinancialAssets
 Real Assets
A Particular Period
• Investment Period
• Holding Period
Investment Criteria
 Risk
 Return
Types of Investment
1. Short Term Investment
2. Long Term Investment
Short Term Investment Decision
 Investment of working capital
Surplus
 Working capital surplus depends

on working capital investment

policy
 Working Capital Investment Policy
Moderate WC investment Policy Aggressive WC investment Policy
Standard Norm : 2:1 (Current Standard Norm 1:1 (Current Ratio)
Ratio)
I II III I II III
CA 7k 10k 12k 4k 5k 6k
CL 5k 5k 5k 5k 5k 5k
WC S/D (3k) 0 2k (1k) 0 1k
Financing needed Short term investment Financing S.T Investment
What will happen if Working capital surplus is
not invested?

 Opportunity cost will be high

 Profit will be low
 It will not remain surplus. It will
be used in unproductive sector.
Where to invest surplus WC?
 It depends on
- The amount of Surplus
- How long it remains as surplus
What do you mean by Short Term
Investment
 Maximum Return
 Minimum Risk
What do you mean by long term
investment?
-Investment in a new project
-Investment on purchase of fixed assets.
 Investment in BMRE for the purposes of

1. Income/revenue generating investment

2. Cost Savings investment

Is called long term investment decision.