Read the passage given below and answer the question.
Mr. Rajesh Gulati is the Finance Manager of 'Health and Life Ltd.' a company dealing with health and organic food items. The company sells its products in smaller quantities in attractive containers. Moreover they have also decided to provide an additional layer of packaging for their products for the purpose of protections along with necessary storage, identification and even convenient transportation.
Keeping up with the latest packaging technology the company decided to upgrade its machinery. This, however, involved a major decision making as to how funds should be invested, so what the company is able to earn highest possible return.
Mr. Gulati estimated the amount of funds required for this purpose. He began with the preparation of sales forecast for the next four years.
He also collected the relevant data about the profit estimates in the coming years. By doing this he wanted to be sure about the availability of funds from internal sources. For the remaining funds he is trying to find out alternative sources.
Identify the financial decision taken by 'Health and Life Ltd.' that involves allocation of funds.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Investment decision
Option (1) Investment decision — Correct. The investment decision is about how the firm’s funds are invested in different assets. The case says the company had to decide how funds should be invested so that it earns the highest possible return. That is allocation of funds.
Option (2) Dividend decision — Incorrect. The dividend decision is about how much profit is paid to shareholders. It does not allocate funds to assets.
Option (3) Financing decision — Incorrect. The financing decision is about raising funds from different sources, not about using them.
Option (4) Management decision — Incorrect. This is not one of the three financial decisions.
NCERT (2026-27 Edition): “Investment 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.” “Financing Decision This decision is about the quantum of finance to be raised from various long-term sources. …” |