Explain factors infuencing financial decisions

Answer 1

In business school, one is often taught two critical factors -- hurdle rate of return (or cost of capital) and risk. These are then combined into a weighted cost of capital (ie: a return weighted for risk) However, one also needs to weigh strategic factors, such as the nature and importance of the financial decision. For example, if I were running a business, there are certain mission-critical things i need, and there are certain niceties that would make operations run smoother. And, sometimes there are things that will help me sell more services or products, because the consumer might find that if I had this or that system, my goods/services become more desirable Then, there's also the availability (or scarcity) of funds and the magnitude of the project or financial decision and these might get traded off against alternatives. A useful way to see all these things are what are called decision trees, where one identifies the outcome, then put branches out which define different ways to achieve the outcome along with financial costs, duration of expenditures, and risks of various outcomes. In this way, it can be easier to both do the financial math as well as brainstorm and choose a particular path. hope that helps