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Concept, characteristics and factors affecting the investment decision
- The concept of investment decision: The investment decision is one of the important decisions issued for the purpose of implementing the company's long term and short term strategy. It aims at generating new production capacities, developing current capacities, replacing them and renewing them or expanding production lines or new projects. Investment methods, risk profile, competitors, expected rate of return, margin of safety and profitability of investment. Characteristics and attributes of investment decision: - Time-related characteristics: Since there is always a time lag between the date of the investment decision and the implementation of that decision and get the proceeds from that investment because the nature and the implementation of investment decisions are long-term so must be taken into account when making the decision to invest the real value of money and purchasing power when making the investment decision and the value of money Purchasing and the return of investment, as well as taking into consideration the technological development and the different marketing mechanisms and the impact on the investment project until production begins. - Characteristics associated with risk and uncertainty: Where investment decisions typically include risk elements and uncertainty as to the association of those decisions with the future and therefore the expected return is uncertain.The risk of investment decision lies in the difficulty of returning without achieving large losses. Therefore, investment decision making must be subject to more specialized scientific studies that ensure its success in the future.Investment decisions are subject to many problems such as forecasting sales and how to estimate the costs for a number of years to come under the circumstances of risk and uncertainty, how to rate the return on investment and the cost of capital. - Characteristics associated with the finance structure: Most investment decisions need to be heavily financed, which may affect the life of the project. The expected return is usually extended for long periods of time and requires predictable long-term revenue and costs. The investment decision includes the allocation of some of the economic resources currently available to create new productive capacities or increase or maintain current productive capacities in the hope of obtaining a long-term return. The decision to invest will result in the allocation of a large part of the company's funds in the purchase of fixed assets specialized for a long period of time and may require the search for sources of funding such as borrowing or issuing bonds or public offering shares for capital increase and other methods of financing conventional investment decisions lead to the company In the case of expansion or replacement at fixed costs, it will raise the size of the tie to a level higher than the normal level for a long period of time. The decision to invest in a particular project impedes the investment of its funds in other investment alternatives that could be invested in other areas available to allocate those funds in accordance with its investment decision. Factors influencing the investment decision: - Economic conditionsRisk and uncertainty- Timing of investment decision making- Alternative opportunities- Taxes- Sources of funding- Working capital working capital- Cash flows- Behavior of competitors- Changes in price level- Production mode- Management philosophy- Market analysis and forecasting sales volume by measuring the gap between supply and demand in the market. - Identify the sources of purchasing production components and productive
assets (locally and internationally)
The investment decision is shared by bothBoard of Directors and Executive DirectorInvestment manager and financial manager
An investment decision is often reached between an investor and his/her investment advisors. Investment Managers may or may not have tremendous leeway in making decisions without consulting the investor.
As per my understanding, the financial management experts first should make the technical analysis like CBA including NPV, IRR, PBP and CBA, in case it was feasible to invest in, then it can be forwarded to the management for further analysis and decision making that can be also shared with the board of Directors as well in case it is a large project need huge investments.
Thanks for invitation,
Usually, the main officers in charge who have to share in investment decisions are "The members of Investment Committee" :
1- The Financial and investment Manager.
2- The Executive Director.
3- The Strategic Planning Head.
4- The Operations' Head.
1- Look at the expenses that will be made to establish the project and compare with the returns obtained if the returns are greater investor will resort to an investment decision to implement the project
2- The decision-making of the investment is more correct for studies of all its details in terms of place and time,
3- The interest rate is used to discount the future income stream generated by the investment project. The current peak of the future income stream is then compared to the project expenditure until the investment decision is made
