Capital investment decisions are concerned with the process of planning, setting
goals and priorities, arranging financing, and using certain criteria to select long-term
assets. Because capital investment decisions place large amounts of resources at risk for
long periods of time and simultaneously affect the future development of the firm, they
are among the most important decisions made by managers. Every organization has lim-
ited resources, which should be used to maintain or enhance its long-run profitability.
Poor capital investment decisions can be disastrous. For example, a failure to invest in
automated manufacturing when other competitors do so may result in significant losses
in market share because of the inability to compete on the basis of quality, cost, and
delivery time. Competitors with more modern facilities may produce more output at
lower cost and higher quality. Thus, making the right capital investment decisions is
absolutely essential for long-term survival.