The following are some important factors that are generally considered while making a major investment decision:

• Amount of Investment: If a firm has abundant funds then it can accept all capital investment proposals which give a rate of return higher than the minimum acceptable or cut-off rate. But most firms have limited funds.
• Minimum Rate of Return: The minimum rate of return is decided on the basis of the cost of capital. For example, if the cost of capital is 15%, the management will not be interested in a proposal that will return less than 15%.
• Cut-of-point: The cut-off-point is a point below which the management does not accept a project.
• Ranking of Investment Proposals: When there are multiple acceptable projects, the management will rank the projects in order of their profitability & select the most profitable project.
• Risk Factor: Different investment proposals have different degrees of risk. A project may provide high degree of return but it may also have a high degree of risk.
• Return Expected from Investment: Capital investment decisions are made in anticipation of increased return in future. It is therefore very necessary to estimate the future return of benefits accruing from the investment proposals. There are two criteria available for quantifying benefits from capital investment decisions. They are: (a) accounting profit, (b) cash flows. The term accounting profit is identical with income concept used in accounting. While in estimating cash flows, depreciation charges and other amortization charges of fixed assets are not subtracted from gross revenue, because no cash expenditure is involved.