Question

Write a two-page paper that explains how corporations make investing decisions. In other words, corporations can reinvest in their own business or they could invest in other businesses, perhaps their suppliers.

Answer 1

The main theme of investing of money is to get maximizing of the returns from that investment. Every investment decision revolves through this theme of profit maximization. So any organization or corporation before they invest the funds somewhere else or in their own business they analyze the process of returns they get from that investment in either of the ways i.e if invested in own businesa what is the percentage of the returns they earn and if invested in someone else business what will be going to get as return percentage. Corporations make decisions of investment mainly on the Internal rate of return( IRR) they earn from their own projects versus the rate of interest or dividends they earn from investing somewhere else.

Corporations will also analyse the risk of the investment i.e the risk that will arise if investment get vanished because of the wrong decision.

There will be an analysis of type of investment to be made i.e whether to invest in riskfree bonds of government issued bonds or in stock markets or in general equity funds of the company. The type of risk that could possibly arise for the type of investment decision is analyzed.