why are capial investment decisions the most important decision in the

QUESTION

why are capial investment decisions the most important decision in the field of financial management
Capital Investment decisions, also known as Capital Budgeting, is the most important decision in the field of financial management. Capital Budgeting process is the process of identifying and evaluating capital projects where the cash flow to the firm will be received over a period of longer than a year. Any corporate decision with an impact on future earning can be examined under this framework. Decisions about whether to buy a new machine, expand business in another geographic area, move the corporate headquarters, replace a delivery truck can be examined under a capital budgeting analysis. For a number of good reasons, capital budgeting may be the most important responsibility that a financial manager has. First, because¦

a capital budgeting decision often involves the purchase of costly long-term assets with lives of many years, the decisions made may determine the future success of the firm. Second, the principles underlying the capital budgeting process also apply to other corporate decisons, such as working capital management and making strategic mergers and acquisitions.Finally, making good capital budgeting decisions is consistent with managements primary goal of maximising shareholder value.

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