What is meant by 'Long-term Investment Decision? State any three factors which affect the long-term investment decision.

A long-term investment decision is otherwise called as Capital Budgeting decision. It involves investment for a long period of time. Capital budgeting decisions are very important as it involves huge investment of fund for a long period of time and are irreversible in nature.

Factors which affect capital budgeting decisions are:
(a) Cash flows of the project: When a company takes an investment decision involving huge amount it expects to generate some cash flows over a period. These cash flows are in the form of a series of cash receipts and payments over the life of an investment. The amount of these cash flows should be carefully analysed before considering a capital budgeting decision. If the cash inflow exceeds cash outflow, a project can be selected otherwise rejected. Time value of cash should also be taken into account for better decision making.
(b) The rate of return: The most important criterion is the rate of return of the project. The expected rate of return from each project must be considered and compared. The project that will give the maximum rate of return must be selected.
(c) The investment criteria involved: The decision to invest in a particular project involves a number of calculations regarding the amount of investment, interest rate, cash flows and rate of return. There are different techniques to evaluate investment proposals which are known as capital budgeting techniques. These techniques are applied to each proposal before selecting a particular project.