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 of Mr. Gulati about the requirement of finance to be raised for the company from various sources.

Financing decision

The correct answer is option 3- Financing decision.

The financial decision of Mr. Gulati about the requirement of finance to be raised for the company from various sources is Financing decision.

Mr. Gulati is focused on estimating the funds required for upgrading the machinery and ensuring that the company has enough funds from internal sources. For any remaining funds, he is exploring alternative sources of finance. This process of deciding how to raise the required funds (whether from internal or external sources) is known as the financing decision.

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. A firm has to decide the proportion of funds to be raised from either sources, based on their basic characteristics.