A company invested in a highly sophisticated machinery after considering factors like earning capacity and rate of return. Which aspect of Financial management is being referred to in this case?

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Shift 31/05/2023 3:30 PM - 6:30 PM

Financing decision

Financial planning

Working capital management

Capital budgeting

Correct Answer

Capital budgeting

Financing decision -This decision is about the quantum of finance to be raised from various long-term sources.
Financial planning - Financial planning is essentially the preparation of a financial blueprint of an organisation’s future operations. The objective of financial planning is to ensure that enough funds are available at right time.
Working capital management - . This investment facilitates smooth day-today operations of the business. Current assets are usually more liquid but contribute less to the profits than fixed assets.
Capital budgeting/ Investing decision - A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets. Investment decision can be longterm or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a long term basis. For example, making investment in a new machine to replace an existing one or acquiring a new fixed asset or opening a new branch, etc.