Long-term investment decision is referred to as the captial budgeting decisionl. It relates to the investment in fixed assets.e,g buying a new machine. Before taking the final decision the finance manager makes a comparative study of various alternatives available in the market on the basis of their cost and profitability.
These decisions are very imortant as they affect the earnings of the business in the long-run.
Factors affecting long-term investment decision are :
(i) cash flow of the project Cash flow of the project during the life of an investment affects teh long-term investment decision.
Series of cash recipts and payments over the life of an investment has to e carefully anaylsed before taking a cpaital budgeting decision.
(ii) Rate of return of the project The most important cirteriion is the rate of returen of the project. Investment yields returen in future. Thus, calculation of returns in future. Thusm calculation of returns is necessary to analyse the best project.
(iii) Risk involved With every investment proposal, there is some degree of risk involved. the company must try to calculate the risk involved in every proposal and select a proposal with moderate degree of risk only.
