Corporations invest in real assets, which generate
income. Some of these assets, such as plant and machinery,
are tangible; others, such as brand names and patents,
are intangible. Corporations finance their investments by borrowing,
by retaining and reinvesting cash flow, and by selling
additional shares of stock to the corporation’s shareholders.
Thus the corporation’s financial manager faces two broad
financial questions: First, what investments should the corporation
make? Second, how should it pay for those investments?
The investment decision involves spending money;
the financing decision involves raising it.