Investment decision refers to selecting and acquiring the long-term and short-term assets in which funds will be invested by the business.
(i) Cash flow of the project: Capital budgeting considers factors associated with nature of the industry, taxation, policy and regulatory structures, political and social stability, etc., to make decisions related to expected-cash flows for huge investments.
(ii) Returns from investment: The selection of projects requiring investments are identified based on possible benefits or returns a business will obtain by preparing appraisal reports. These reports determine the amount of investments required and the availability of possible returns against the required amount.
(iii) Trade-off between profitability and liquidity: If a business should have continuous liquidity or enough working capital for continuing operations that generate sales and cater to current obligations. Lack of working capital for current assets would make the business illiquid and lead to losses.
Investment decision refers to selecting and acquiring the long-term and short-term assets in which funds will be invested by the business.
(i) Cash flow of the project: Capital budgeting considers factors associated with nature of the industry, taxation, policy and regulatory structures, political and social stability, etc., to make decisions related to expected-cash flows for huge investments.
(ii) Returns from investment: The selection of projects requiring investments are identified based on possible benefits or returns a business will obtain by preparing appraisal reports. These reports determine the amount of investments required and the availability of possible returns against the required amount.
(iii) Trade-off between profitability and liquidity: If a business should have continuous liquidity or enough working capital for continuing operations that generate sales and cater to current obligations. Lack of working capital for current assets would make the business illiquid and lead to losses.
