On which three factors does a firm's investment decision depend? Discuss.

The three factors that influence a firm's investment decisions are: 1. Expected rate of return on the investment: Companies evaluate the potential profitability of an investment project compared to other alternative investment opportunities and choose the investment that offers the highest expected return, considering the associated risks. 2. Cost of capital or the interest rate: Companies will evaluate the cost of capital against the expected rate of return and invest in projects if the return exceeds the cost of capital. A lower cost of capital makes an investment project more attractive. 3. Business risk: Companies assess the different risks, such as market risk, credit risk, and operational risk, when making investment decisions. They will prefer investing in projects with lower risk levels, considering the possible return on investment. These factors contribute significantly to a firm's investment decision-making process, allowing them to make informed and profitable choices.