Investment Decision

Answer: Investment decision is the financial decision about where and how much the company's funds should be invested, i.e. in which assets.

It covers investment in fixed assets (long term or capital budgeting decisions such as buying machinery or setting up a new plant) and in current assets (working capital decisions such as stock and debtors). Since funds are limited, the finance manager evaluates each proposal on the basis of expected returns, risk and cost, and selects the proposal that maximises the wealth of shareholders. Long term investment decisions involve large amounts and are irreversible, so they must be taken carefully.