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CA Intermediate · Financial Management and Strategic Management · Scope and Objectives of Financial Management

In the context of the scope of financial management, which of the following decisions is classified as a 'financing decision' rather than an investment decision?

Selecting the mix of equity share capital and long-term debt is a financing decision, because it deals with the sources of funds and capital structure. The other choices involve deploying funds in assets such as machines, securities or businesses, which makes them investment decisions.

  1. ASelecting the mix of equity share capital and long-term debt to fund a new plantCorrect
  2. BDeciding whether to replace an existing machine with a more efficient one
  3. CChoosing to invest surplus cash in short-term marketable securities
  4. DDeciding whether to acquire a competitor's business

Explanation

A financing decision concerns the sources of funds and the capital structure, i.e. the proportion of equity and debt. Replacing a machine, investing surplus cash and acquiring a business all concern how funds are deployed in assets, so they are investment decisions.

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