Which of the following is not a factor affecting investment decision ?
Which of the following is not a factor affecting investment decision ?
Show Hint
- Investment criteria involved
- Control considerations
- Cash flows of the project
- Rate of return
The Correct Option is B
Solution and Explanation
We must find the one item that does not affect the investment decision.
Investment decision is about where to put the funds of the firm, that is, in which long-term assets or projects.
Step 2: Recall the factors of investment decision:
Important factors are the cash flows of the project, the rate of return and the investment criteria involved.
These help a firm judge if a project is worth taking up.
Step 3: Check each option:
(A) Investment criteria involved: tools like payback period and net present value are used to judge projects. This is a factor.
(C) Cash flows of the project: the cash a project will bring in is a main factor. This is a factor.
(D) Rate of return: the firm compares the expected return from projects and picks the best. This is a factor.
Step 4: Find the odd one:
(B) Control considerations relate to the financing decision. If a firm issues equity shares, the control of existing owners may be diluted.
So it is a factor of the financing decision and not of the investment decision.
Final Answer:
Control considerations do not affect the investment decision. The correct option is (B).
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