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

Kaveri Ltd's finance manager is considering the following. Which of these is a 'finance function' decision related to the financing decision rather than the investment decision?

Deciding the mix of debt and equity to fund a new plant is the financing decision, because it concerns the sources and proportion of funds raised. Choosing machines, acquiring a business or setting inventory levels are investment decisions about how funds are used.

  1. ADeciding the mix of debt and equity to fund a new plantCorrect
  2. BSelecting between two machines with different expected cash flows
  3. CDeciding whether to acquire a competitor's business
  4. DDeciding how much stock of raw material to hold

Explanation

The financing decision concerns the sources and proportion of funds, i.e. the capital structure of debt and equity. Choosing machines, acquisitions and holding inventory are investment (capital budgeting or working capital) decisions on how funds are deployed.

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