Answer:
Following are the three factors affecting capital budgeting decision: (i) 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. The amount of these cash flows should be carefully analysed before considering a capital budgeting decision. (ii) The Rate of Return It is the most important criteria to decide the investment proposal, as a higher rate of return would induce more investment and vice versa. (iii) Investment Criteria The manager must compare and analyse the amount of investment, cash flows, interest rate, etc of various proposals and then take a decision.
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