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

Under the finance function, which decision relates to the 'financing decision' rather than the investment or dividend decision?

Determining the mix of debt and equity in the capital structure is the financing decision, as it deals with raising funds from the best sources. Buying plant is an investment decision, distributing profits is a dividend decision, and inventory levels are a working capital matter.

  1. ADetermining the proportion of debt and equity in the capital structureCorrect
  2. BSelecting a new plant to be purchased
  3. CDeciding the percentage of profit to be distributed to shareholders
  4. DDeciding the level of inventory to carry

Explanation

The financing decision concerns the sources of funds and the optimum mix of debt and equity. Choosing a plant is an investment decision, profit distribution is a dividend decision, and inventory level is a working capital (investment in current assets) decision.

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