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CS Executive · Corporate Accounting and Financial Management · Introduction to Financial Management

Which of the following is classified as an investment decision (capital budgeting decision) of a firm rather than a financing or dividend decision?

Deciding to buy a new plant for an additional product line is an investment decision, because it concerns committing funds to long-term assets. Choosing sources of funds or capital mix is a financing decision, and fixing the payout of profits is a dividend decision.

  1. AChoosing between a term loan and a fresh equity issue to fund expansion
  2. BDeciding whether to buy a new plant to manufacture an additional product lineCorrect
  3. CDeciding what percentage of annual profit to distribute to shareholders
  4. DDeciding the proportion of debt in the target capital structure

Explanation

The investment decision concerns where funds are committed, such as acquiring long-term assets like a new plant. Choosing between loan and equity and fixing debt proportion are financing decisions. Deciding the profit distribution percentage is a dividend decision.

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