Business Studies, asked by anuranan454, 10 months ago

What is the nature of financial assets investment decision?

Answers

Answered by dayanandsaraswati74
0

Explanation:

(1) Large investment

- Involve large investment of funds

- Fund available is limited and the demand for funds exceeds the existing resources

- Important for firm to plan and control capital expenditure

(2) Long term commitment of funds

- Involves not only large amount of fund but also long term on permanent basis.

- It increases financial risk involved in investment decision.

- Greater the risk greater the need for planning capital expenditure.

(3) Irreversible Nature

- Capital expenditure decision are irreversible

- Once decision for acquiring permanent asset is taken, it become very difficult to dispose of these assets without heavy losses.

(4) Long-term effect on profitability

- Capital expenditure decision are long-term and have effect on profitability of a concern

- Not only present earning but also the future growth and profitability of the firm depends on investment decision taken today

- Capital budgeting is needed to avoid over investment or under investment in fixed assets.

(5) Difficulties of investment decision

- Long term investment decision are difficult to take because (i) decision extends to a series of year beyond the current accounting period

- (ii) uncertainties of future

- (iii) higher degree of risk

(6) National importance

- Investment decision taken by individual concern is of national importance because it determines employment, economic activities and economic growth.

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