The decision involving identification of various available sources of funds is:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Financing decision
Option (1) Financing decision — Correct. The financing decision is about how much finance to raise and from which long-term sources. The firm first identifies the sources open to it: shareholders’ funds (equity capital and retained earnings) and borrowed funds (debentures and other debt). It then decides how much to raise from each.
Option (2) Investing decision — Incorrect. This decides where the firm’s funds are put to use, that is, in which assets or projects. It is about using funds, not about where they come from.
Option (3) Dividend decision — Incorrect. This decides how much of the profit is paid to shareholders and how much is kept in the business.
Option (4) Capital decision — Incorrect. This is not one of the financial decisions. The three decisions are investment, financing and dividend.
NCERT (2026-27 Edition): “Financing Decision This decision is about the quantum of finance to be raised from various long-term sources. Short-term sources are studied under the ‘working capital management’. It involves identification of various available sources. The main sources of funds for a firm are shareholders’ funds and borrowed funds. The shareholders’ funds refer to the equity capital and the retained earnings. Borrowed funds refer to the finance raised through debentures or other forms of debt. …” |