The article aims to seek clarification on what managers target to accomplish by applying capital allocation and the strong connection between capital allocation and the overall performance of a business organization. In the research, Busenbark et al. (2017) deploy qualitative research that shows the unsuccessful application of capital allocation in business firms. Busenbark et al. (2017) posit that business organizations often generate cash to divide investments, repay debts, and maintain cash reserves. However, Busenbark et al. (2017) warn that unsuccessful capital allocation is realized when invested inefficiently in lower-growth projects. In this regard, the gains that are traditionally associated with capital allocation get erased. The buying of debt concept coincides with the text because business managers aim to settle debts by allocating a percentage of cash (Gopinath et al., 2017). Besides that, the issue of capital performance and firm performance agrees to the contents of the text.

Computation of critical elements in the capital structure requires assigning weights to each cost. The weighted average of cost capital (WACC) plays an integral role in influencing investment decisions. According to Mian & Vlez-Pareja (2008) assertions, the WACC is a tool that investors often use before making investment decisions. It gives the minimum rate of returns that the beneficiaries of their investment produce. According to the article, capital allocation gets wasted when done inefficiently or allocated to projects that inhibit lower growth. As such, the article's findings reiterate the need to use WACC while making investments as it shows the potential returns the investment can yield.

References

Busenbark, J. R., Wiseman, R. M., Arrfelt, M., & Woo, H. S. (2017). A review of the internal capital allocation literature: Piecing together the capital allocation puzzle.Journal of Management,43(8), 2430-2455.

Gopinath, G., Kalemli-zcan, ., Karabarbounis, L., & Villegas-Sanchez, C. (2017). Capital allocation and productivity in South Europe.The Quarterly Journal of Economics,132(4), 1915-1967.

Mian, M. A., & Vlez-Pareja, I. (2008). Applicability of the classic WACC concept in practice.Latin American Business Review,8(2), 19-40.

Question:

Based on your article's findings and textbook what are some of the Capital allocation methods and or tools being used in the real world today by financial managers?