Investment by firms in capital assets is important for many reasons – it is necessary to
increase output of products and to facilitate growth and higher profitability and it is
especially important in the process of invention and innovation. High investment can
also be used as a tool of entry deterrence through the erection of barriers to entry. The
wrong investment decisions by the firm can have disastrous results on the operation of
the organisation, as can the wrong choice of finance for the investment.