Decisions related to investment:

• Business requires capital investment in various assets that too for a long and fixed term. This includes investment in machinery, land, etc.
• It is always a risky and tricky task for the financial manager to identify the best asset in which investment should be made. Hence it is very crucial that decision of investment is evaluated in terms of expected return and risk.
• Investment decision is called capital budgeting. There are several methods of capital budgeting brought in use by the finance manager for deciding the investment decision to be taken for the company. Few of these methods are pay-back method, rate of return method, discounted cash flow method, etc.

Factors affecting investment decision:

• Need of total capital
• Estimated rate of return and profitability from investment
• Estimated net cash receivable from investment
• Element of risk involved in investment
• Requirement of working capital after investment
• Useful economic life of investment and its estimated life
• Significance of investment
• Capital rationing
• Certainty or uncertainty of earning in future