Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure. Decisions are based on several inter-related criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. These projects must also be financed appropriately. If no such opportunities exist, maximizing shareholder value dictates that management return excess cash to shareholders. Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision.

Management must allocate limited resources between competing opportunities "projects"  in a process known as capital budgeting. Making this capital allocation decision requires estimating the value of each opportunity or project: a function of the size, timing and predictability of future cash flows.

Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows and hence the riskiness of the firm will be affected, the financing mix can impact the valuation. Management must therefore identify the  optimal mix of financing—the capital structure that results in maximum value. See Balance sheet, WACC, Fisher separation theorem; but, see also the Modigliani-Miller theorem.

This is the general case, however there are exceptions. For example, investors in a Growth stock, expect that the company will, almost by definition, retain earnings so as to fund growth internally. In other cases, even though an opportunity is currently NPV negative, management may consider investment flexibility potential payoffs and decide to retain cash flows; see above and Real options.

Management must also decide on the form of the distribution, generally as cash dividends or via a share buyback. There are various considerations: where shareholders pay tax on dividends, companies may elect to retain earnings, or to perform a stock buyback, in both cases increasing the value of shares outstanding; some companies will pay dividends from stock rather than in cash see Corporate action. Today it is generally accepted that dividend policy is value neutral.