Under its objective of ensuring availability of funds whenever required, financial planning estimates the funds needed for different purposes and the time at which they are needed. What else does it try to specify?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → the possible sources of these funds
Option (1) the proportion of debt and equity in these funds — Incorrect. The mix of debt and equity is the capital structure. It is settled by the financing decision.
Option (2) the possible sources of these funds — Correct. Financial planning prepares a financial blueprint of the firm’s future operations. Besides how much is needed and when, it tries to specify the possible sources of these funds. So the money is ready at the right time.
Option (3) the investment projects to be chosen with these funds — Incorrect. Choosing the projects to invest in is the investment (capital budgeting) decision. It compares the cash flows and returns of the projects.
Option (4) the share of profit to be paid out as dividend — Incorrect. This is the dividend decision. It settles how much profit is paid out and how much is retained.
NCERT (2026-27 Edition): “Financial Planning … Thus, financial planning strives to achieve the following twin objectives.” “(a) To ensure availability of funds whenever required: This include a proper estimation of the funds required for different purposes such as for the purchase of long-term assets or to meet day-to-day expenses of business etc. Apart from this, there is a need to estimate the time at which these funds are to be made available. Financial planning also tries to specify possible sources of these funds.” |