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

Which of the following is a function of the finance manager related to the financing decision rather than the investment decision?

Determining the mix of debt and equity for funding a project is a financing decision because it concerns the sources of funds and capital structure. Choosing plants, replacing machines and selling divisions are investment decisions about where funds are committed or withdrawn.

  1. ASelecting between a new plant and an expansion of existing plant
  2. BDetermining the mix of debt and equity for funding a projectCorrect
  3. CDeciding to replace an old machine with a new one
  4. DDeciding to sell an unprofitable division

Explanation

The financing decision deals with sources of funds and the capital structure, i.e. debt-equity mix. The other options concern the commitment or withdrawal of funds in assets, which are investment decisions.

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