Financial Management

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Managers just need to look at such decisions in a broader context than just numbers and percentages Another issue is the methods used by accountants in asses these costs Many times they are over stated and careful managers like to overstate the percentages used `just to be safe

The key is to see which option or ratio of options is the most cost effective Investment decisions however are not just based on calculations regarding the cost of capital and the profit expected from them

Despite of being well equipped with such tools , many a time a strategic decision overrides any calculations made by accountants This just means that the field of accounting is already well equipped with tools to asses the cost of capital

Hence it is more appropriate to rationalize the discount figures before using them for predicting costs of projects like AMT where returns are vague negative cash flows are recurrent but the eventual result is better for the firm in most cases The then investigates

The states this very fact that investment decisions are not a stand alone accounting process but part of a whole decision making process and thus should also be seen that way (Jones Lee 1998

are not taken account either because they aren ‘t quantifiable or the ones calculating them do not have the vision or direction to do so (Johnson and Kaplan , 1987 First of , traditional accounting might be ideal for day to day practices , it does not however have the tools to asses a decision based on qualitative facts

Whether the reason is to gain larger market shares , move into new markets or expanding the operations of a business , the prime concern of all firms is to asses that the investment will return the maximum amount of profit possible

Miscalculating costs also results in firms investing in technologies that do not eventually add value to their business

Hence investment decisions are not solely based on the trade off between cost and profit

Raising capital however comes with a cost Public offerings , contacting investors or saving dividends all have costs

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