Podcast
Questions and Answers
A company's decision to acquire a new manufacturing facility would be considered an investment decision.
A company's decision to acquire a new manufacturing facility would be considered an investment decision.
True (A)
Issuing bonds to raise capital for a new research and development project is solely a financing decision.
Issuing bonds to raise capital for a new research and development project is solely a financing decision.
False (B)
When a company decides to purchase a new fleet of delivery trucks, it is making both an investment and a financing decision.
When a company decides to purchase a new fleet of delivery trucks, it is making both an investment and a financing decision.
True (A)
A company's decision to increase its marketing budget for a new product launch is solely a financing decision.
A company's decision to increase its marketing budget for a new product launch is solely a financing decision.
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A company's decision to sell shares of stock to raise capital for a new product line can be classified as a financing decision.
A company's decision to sell shares of stock to raise capital for a new product line can be classified as a financing decision.
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Investing in a new software platform to streamline internal operations is an example of an investment decision that solely focuses on tangible assets.
Investing in a new software platform to streamline internal operations is an example of an investment decision that solely focuses on tangible assets.
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When a corporation lowers its dividend payment to conserve cash, it is making a financing decision.
When a corporation lowers its dividend payment to conserve cash, it is making a financing decision.
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Buying back a significant portion of outstanding company shares is a financing decision that directly leads to a decrease in total assets.
Buying back a significant portion of outstanding company shares is a financing decision that directly leads to a decrease in total assets.
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A company's decision to issue new shares of stock primarily targets the acquisition of real assets.
A company's decision to issue new shares of stock primarily targets the acquisition of real assets.
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A company's decision to take a loan from a bank to finance the acquisition of a new fleet of trucks is considered both an investment and a financing decision.
A company's decision to take a loan from a bank to finance the acquisition of a new fleet of trucks is considered both an investment and a financing decision.
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A company's decision to purchase a new software platform that streamlines its operations would be classified solely as an investment decision, as software platforms are intangible assets.
A company's decision to purchase a new software platform that streamlines its operations would be classified solely as an investment decision, as software platforms are intangible assets.
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A company's decision to increase its advertising budget for a new marketing campaign is considered a financing decision because it involves spending money.
A company's decision to increase its advertising budget for a new marketing campaign is considered a financing decision because it involves spending money.
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A company's decision to repurchase its own outstanding shares is an investment decision as it involves acquiring financial assets.
A company's decision to repurchase its own outstanding shares is an investment decision as it involves acquiring financial assets.
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The decision to build a new factory is classified as an investment decision because it involves a long-term commitment to acquiring tangible assets.
The decision to build a new factory is classified as an investment decision because it involves a long-term commitment to acquiring tangible assets.
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Reducing the dividend payment for the shareholders of a company can be classified as a financing decision to retain capital for future investments.
Reducing the dividend payment for the shareholders of a company can be classified as a financing decision to retain capital for future investments.
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A company's decision to acquire a patent from another company for a new technology is classified as a financing decision because it involves the transfer of financial assets.
A company's decision to acquire a patent from another company for a new technology is classified as a financing decision because it involves the transfer of financial assets.
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Flashcards
Financial decisions
Financial decisions
Decisions made by companies regarding investments and financing.
Investment decisions
Investment decisions
Choosing assets to buy that enhance business operations; also known as capital budgeting.
Capital budgeting
Capital budgeting
The process of planning significant expenditures on assets.
Financing decisions
Financing decisions
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Equity
Equity
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Liabilities
Liabilities
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Capital expenditure (CAPEX)
Capital expenditure (CAPEX)
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Risk in investments
Risk in investments
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Tangible assets
Tangible assets
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Intangible assets
Intangible assets
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Equity vs. Liabilities
Equity vs. Liabilities
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Short-term vs Long-term investments
Short-term vs Long-term investments
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Study Notes
Corporate Finance Decisions
- Companies require assets (tangible and intangible) for operations, funded through financing.
- Financial managers make investment and financing decisions.
- Investment decisions (capital budgeting/CAPEX) involve acquiring assets to contribute to business operations, with varying time horizons (from short-term, like seasonal campaigns, to long-term, like large-scale projects).
- Financing decisions involve raising capital for these investments, through equity or debt.
- Investment decisions concern real assets; financing decisions relate to financial assets.
- Every corporate decision has financial implications; corporate finance studies these decisions and used analytical tools.
Investment Decisions
- Examples of investment decisions include:
- Meta's acquisition of Pebbles ($60 million) for VR software.
- Ford's investment of $1 billion in a Mexican assembly plant.
- Intel's development of a new microprocessor factory ($7 billion).
- Royal Dutch Shell's construction of a natural gas pipeline from Australia.
- Avon's €200 million investment in a new cosmetics range.
- Facebook (Meta)'s $60 million acquisition of Pebbles, an Israeli company developing virtual reality software.
- Ford's $1 billion investment in a Mexican assembly plant.
- Intel developing a new microprocessor factory ($7 billion).
- Royal Dutch Shell building a natural gas pipeline from Australia.
- Avon's €200 million investment in a new cosmetics range.
Financing Decisions
- Examples of financing decisions include:
- John Deere maintaining credit lines up to $7.2 billion.
- LVMH repaying €750 million debt.
- Walmart increasing its dividend to $2.00 per share.
- BMW borrowing €350 million from Deutsche Bank.
- Pfizer issuing new shares to acquire a biotech company (primarily financing, but some investment involved).
- John Deere maintaining credit lines with banks.
- LVMH repaying €750 million in debt issued in 2009 and 2011
- Walmart raising its annual dividend to $2.00 per share.
- Companies can raise funds through equity (shares) or debt (borrowing).
- Companies may persuade investors to invest in exchange for future profits, or pay back with interest.
Distinguishing Investment and Financing Decisions
- Investment decisions focus on acquiring real assets to boost the business.
- Financing decisions concern raising capital for these investments.
- Investment decisions involve acquiring real assets; financing decisions involve issuing financial assets to investors.
Identifying Investment and Financing Decisions
- Intel decides to spend $7 billion to develop a new microprocessor factory (investment decision)
- BMW borrows 350 million euros from Deutsche Bank (financing decision)
- Royal Dutch Shell constructs a pipeline to bring natural gas onshore from a production platform in Australia (investment decision)
- Avon spends €200 million to launch a new range of cosmetics in European markets (investment decision)
- Pfizer issues new shares to buy a small biotech company (financing decision, with some investment).
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Description
Explore the critical decisions in corporate finance, focusing on investment and financing decisions that impact business operations. This quiz covers real-world examples of investments and discusses how companies acquire necessary assets through equity and debt. Test your knowledge on capital budgeting and financial management strategies.
