Question

You are a CEO at a finance firm. One of your managers is up for promotion. You want to make sure that they can discern a good financial offer from a bad one so that they will do well making the company money. You invent an investment proposal and give all the information to the manager in question. You tell them to assess whether or not the company should accept the investment proposal or not. (Your proposal can be good OR bad. Remember you are testing the manager so you don't automatically have to create numbers that would be good for the company.)

ITS A DISCUSSION POST**

Answer 1

An investment proposal is a type of document that is prepared with the goal of motivating potential investors to enter into a mutually beneficial business relationship with a firm or project. The idea is to include information within the body of the proposal that helps investors or lenders to see the value of the firm or the project, understand the potential rewards associated with investing, and provide information that helps to address and resolve and concerns or reservations that the investors may have with the activity. A proposal of this type may be prepared as a generic document intended to address a wide range of investors, or be a document prepared and customized to attract the participation of a single investor or it may be an elite group of angel investors.

The use of an investment proposal is common with a wide range of investment opportunities. A startup company may prepare this type of presentation in order to attract investors and secure the funds needed to get the business going and sustain the effort until it begins to generate revenue from sales. Established firms may utilize this type of proposal to attract investors to support an expansion project or the launch of a new product. Municipalities may prepare an investment proposal to demonstrate the benefits of investing in a bond issue that will help raise money for building projects or other improvements in the community.

Whatever the scope of the investment proposal, the document will usually include a few key sections that are intended to provide important information to investors. The text will usually begin with data about the nature of the investment opportunity, usually providing some background and history about how the opportunity came about. From there, the proposal will address the mechanics of how the opportunity will be structured, providing information on how a return can be made from the venture. The text will go on to include a timeline of events to occur, including when the investor can anticipate receiving some sort of return, the nature of security measures that will be taken to protect the investor’s holdings, and even a schedule that focuses on when each interest payment can be expected and how the principal investment will be repaid.

Within the scope of the investment proposal, there will be some data relating to possible objections to the project. Here, the goal is to proactively address the more likely concerns of investors and provide factual data that indicates how those concerns can be addressed and diffused. This includes concerns about what impact changes in the economy could have on the success of the project, what other sources of revenue will be used to protect the interests of the investors, and even how this particular opportunity compares to similar opportunities in the marketplace.

Meaning of Investment Decisions:

In the terminology of financial management, the investment decision means capital budgeting. Investment decision and capital budgeting are not considered different acts in business world. In investment decision, the word ‘Capital’ is exclusively understood to refer to real assets which may assume any shape viz. building, plant and machinery, raw material and so on and so forth, whereas investment refers to any such real assets.

In other words, investment decisions are concerned with the question whether adding to capital assets today will increase the revenues of tomorrow to cover costs. Thus investment decisions are commitment of money resources at different time in expectation of economic returns in future dates.

Choice is required to be made amongst available alternative revenues for investments. As such investment decisions are concerned with the choice of acquiring real assets over the time period in a productive process.

Need for Investment Decisions:

The need for investment decisions arrives for attaining the long term objective of the firm viz. survival or growth, preserving share of a particular market and retain leadership in a particular aspect of economic activity.

The firm may like to make investment decision to avail of the economic opportuni­ties which may arise due to the following reasons:

(i) Expansion of the productive process to meet the existing excessive demand in local market to exploit the international markets and to avail the benefits of economies of scale.

(ii) Replacement of an existing asset, plant, machinery or building may become necessary for reaping advantages of technological innovations, minimising cost of products and increasing the effi­ciency of labour.

(iii) Buy or hire on rent or lease a particular asset is another important consideration which establishes the need for making investment decisions.

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