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

Which of the following decisions is classified as a finance function relating to the 'financing decision' rather than the 'investment decision' or 'dividend decision'?

Choosing between debt and equity to raise funds for a plant is a financing decision, since it deals with the sources and mix of capital. Machine replacement and product expansion are investment decisions, and deciding the payout percentage is a dividend decision.

  1. AChoosing between debt and equity to raise ₹50 crore for a new plantCorrect
  2. BDeciding whether to purchase a new machine or continue with the old one
  3. CDetermining the percentage of profit to be distributed to shareholders
  4. DDeciding to expand into a new product line after evaluating its expected returns

Explanation

The financing decision concerns the sources and mix of funds, such as debt versus equity. Machine replacement and product expansion are investment (capital budgeting) decisions, and profit distribution is the dividend decision.

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