Question

Q#06: Write factors needed for employments and utilization of funds. explain briefly

Answer 1

Factors which are needed for employment and utilisation of funds are as follows-

A. The most important factor which is needed for employment is risk associated with the project and it will be determining the overall capital structure which will be required to fund the project and it will also determining the rate of return of investment.

B. Hurdle rate- hurdle rate is the the lowest rate of return which may be acceptable to the investor in case the project is invested in the business so it will be the weighted average cost of capital and it needed to be considered for employment and utilisation of the fund.

C. Nature of the business is also important and the history of the business in order to fund itself for various project is also important in order to determine the employment and utilisation of the fund.

D. various types of micro risk associated with the project and the cash flows associated with the project along with the rate of return which are associated with the project are also to be considered before we need to employ and utilise the fund for the business.

E. Efficient and effective managerial personnel are also required for proper utilisation of the fund because these managerial persons with be helpful in utilising these funds effectively in order to achieve a higher rate of return.

F. Selection of the best project and capital budgeting decision making process is most important in order to utilise and employ the funds for the longer period because company shall only be selecting the project which will be offering it with the highest rate of return.

G. utilisation of funds should be only done at those times when the rate of return will be maximum.