Capital investment decision is a business entity is a function of the top management in an organization the taking of decision to in primary is predetermination of organization goal and constant evaluation of the feasible strategies used for attainment of goals and objective. This decision involves the commitments of capital into investment or projects that have long term span, or allocation of capital to long term asset, that would yield benefit in the future. Due to the fact that future benefits are uncertain, investment decision involve risk and uncertainty. Therefore investment proposals should be evaluated in terms of both return or profit and risk, these two factors affect the firm’s market value.
The process of planning and managing a firm’s long term investment is referred to as capital budgeting, which would be treated later in this book. One of the function of the financial manager is to evaluation the expected cash inflows, that is cash expected to receive from investment when the cash is expected (the time )and compare it with expected cash outflow, that is expenditure on the investment. Also the financial manager is expected to evaluate the size, timing and risk of future cash flows before the final selection of investment/ projects.