A newly appointed finance manager has been assigned the task of procuring funds for an upcoming project . After procurement, he has to decide upon the assets in which investment is to be made.
Explain the various factors that the manager would consider in taking the above decisions.

Explanation

Factors affecting long-term investment decsion are :
(i) cash flow of the project Cash flow of th project during the life of an investment affects the long-term investemetn decsion. Serives of cash receipts and payments over the4 life off an investement has to be carefull. analysed before taking a capital budgeting decision.
(ii) Rate of return of the project The most important criterion is the rate of return of the project. Investement yields return in future. Thus calculation of returns is necessay to analyse the best project.
(iii) Risk involved With every investeemtn proposal, there is some degree of risk involved . The company mus try to calcuate The risk involved in every proposal and selcect a propoal with moderate degree of risk only.
The main factors affecting financing decsions are given below :
(i) Cost The cost of raising funds from different soruces are different . A wise finacne manager opt fro teh cheapest source of finance.
(iii) Floation cost If the floatation cost, i.e. the expense incurred in issue of debt is higher, the source of finance becomes less attractive.
(iv) Cash flow postion of the company A stronger cash flow position may make debt financing more viable than funding through equity.
(iv) Cash flow position of the company A stronger cash flow position may make debt financing more viable than funding through equity.
(v) Fixed operating cost if a firm is having a higher fixed operating burden like payment of interets, preminums, salaries,rent etc. Then it should avoid financing through debt. This is because it will further increase the interest payment burden and the firm can reach an unfavorable position.
(vi) Control consideration lssue of more equity may dilute shareholder's control over the business. Therefore, a company afraid a takover bid may prefer debt to equity.