What are the 3 key decisions faced by financial managers?

What are the 3 key decisions faced by financial managers?

1. The Investment Decision

• The way in which funds that have been raised are used in productive activities

• The objective is to generate a return to investors

• Also known as capital budgeting or project evaluation

1. The Financing Decision

• The mix of funding (debt and equity) obtained from capital markets
• This is addressed via analysis of capital structure 
• How should the firm finance the investment in real assets,  in order to maximise its market value
• Is it possible to create wealth on the financing side of the balance sheet? Can the value of the firm be affected by the way it is financed?

1. The Dividend Decision

• Relates to the form in which returns are passed on to equity holders
• Dividend policy refers to the decision by companies to pay out net profits as dividends or to retain the profits

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