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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 is a decision that relates to the 'financing decision' rather than the 'investment decision'?

Deciding the mix of equity and long-term debt to fund a plant is the financing decision, because it deals with the sources of funds and capital structure. The other choices concern how funds are used in assets, machines, acquisitions or receivables, which are investment decisions.

  1. ADeciding the mix of equity share capital and long-term debt to fund a new plantCorrect
  2. BChoosing between two machines of different capacities for a factory
  3. CDeciding whether to acquire a rival firm's business
  4. DDeciding the level of receivables to be maintained

Explanation

The financing decision concerns the sources of funds and the capital structure, i.e. the debt-equity mix. Choosing machines, acquiring a business and fixing receivables levels are all decisions about where funds are deployed, so they are investment (or working capital) decisions.

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