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

Which of the following decisions falls under the 'finance function' of treasury/financial management relating to the financing decision rather than the investment decision?

Choosing the proportion of debt and equity is a financing decision, because it concerns the sources of funds and capital structure. Buying machinery, selecting projects and setting inventory levels are investment or working capital decisions.

  1. AChoosing the proportion of debt and equity to raise fundsCorrect
  2. BDeciding whether to buy a new machine
  3. CSelecting which of two projects to undertake
  4. DDeciding the level of inventory to carry

Explanation

The financing decision deals with the sources of funds and the capital structure mix of debt and equity. Buying machines and selecting projects are investment (capital budgeting) decisions, and inventory level is a working capital decision.

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