The Financing Decision

The financing decision
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Financing decision in an organization
Financial decisions are important in improving cash flow management, maximizing shareholder value, allocating assets and managing liabilities to improve long-term growth. In essence, financial decisions affect the company’s financial positions in the short term and long term (Brigham & Houston, 2012). In particular, the finance department is tasked with choosing the best option of increasing shareholder wealth. This is also related to the investments made and projects undertaken. In such cases, the financial decisions take into account the benefits of taking a liability to finance object, and extent to which this adversely affects the company’s financial position.
Difficulties in making financial decisions
There numerous challenges affecting decision makers when choosing financial choices. It is not possible to accurately predict risk inherent in making financial decisions. If decisions turn out unexpected adverse effects then they negatively affect the company’s financial position. At the same time, it is not always to get consensus on the bets financing alternative especially when there are projects and undertaking requiring heavy investment. In any case, the company has to take into account tax planning to minimize tax payable without resulting to tax avoidance.
Impact of financial package on the value of the shares or the value of the company
In most cases, equity financing results to assigning more income to the shareholders than debt financing. In other words, leveraging through debts lowers the shareholders value, since there is a need to repay debt before equity, while there is also claim on the assets because of debt (Brigham & Ehrhardt, 2010). The terms of loans also affect the shareholder value since short term loans need to be repaid in a shorter period of time, meaning that the firm has to look for other financial option...