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Capital Allocation Decision

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Capital allocation decision
Allocation of invested funds between risk-free assets and the risky portfolio.

Capital Allocation Decision
A company's or manager's decision on where to place recourses such that they produce the maximum possible return for shareholders. Capital allocation decisions represent attempts to produce profit in the most efficient way possible. They can be quite difficult to make, as the options for capital allocation are virtually limitless. Capital allocation decisions may involve making more of the same product, investing in research to invent new products, paying out more in dividends, or making any number of different decisions.


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Understanding the level of fixed asset intensity within a service line and the revenue production associated with that service allows an organization to make informed capital allocation decisions.
Accepting the proposed project would not be a wise capital allocation decision.
The "textbook" approach to the corporate capital allocation decision is strikingly simple: invest in all projects with positive, risk-adjusted net present values (NPVs).
 
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