Final answer:
Investor decisions on projects include considering expectations of future profits, interest rates, and various market conditions such as government incentives and input costs. Additionally, the financial strategy for the investment, such as the source of capital and associated risks, is critical.
Step-by-step explanation:
When deciding whether to invest in a project, there are several important considerations besides projected income (p.i.) that need to be taken into account. First and foremost, expectations of future profits are crucial; a positive outlook can boost business confidence leading to more investment. For instance, during economic growth periods, such as the late 1990s in the U.S., investment levels soared.
Another key factor is interest rates; low interest rates encourage businesses to spend more on investment as borrowing costs are reduced, while high interest rates can deter such spending due to increased borrowing costs or opportunity costs of capital.
Additionally, other financial considerations include market conditions such as the availability of special government incentives, changes in input costs like a decline in energy prices, and the risk profile of different financial assets, which requires a thorough risk analysis. Investment sources, such as early-stage investing, reinvesting profits, borrowing, or selling stock, also play a role in determining the financial strategy behind the investment.