Which of the following pairs of a financial decision and its example is correctly matched?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Capital budgeting decision – An advertising campaign having long-term implications for the firm
Option (1) Working capital decision – Opening a new branch of the business — Incorrect. A new branch commits funds for many years, so it is a capital budgeting decision. Working capital decisions deal with the levels of cash, inventory and receivables.
Option (2) Capital budgeting decision – An advertising campaign having long-term implications for the firm — Correct. Capital budgeting covers long-term assets and also major expenditures with long-term implications, such as an advertising campaign or a research and development programme.
Option (3) Financing decision – Deciding how much of the profit after tax is to be retained in the business — Incorrect. How much of the profit after tax to retain is the dividend decision. The financing decision is about how much to raise from which long-term source.
Option (4) Dividend decision – Deciding the proportion of debt and equity in the long-term funds — Incorrect. The proportion of debt and equity is the financing decision. The dividend decision shares the profit between dividend and retained earnings.
NCERT (2026-27 Edition): “Management of Fixed Capital … Investment in these assets would also include expenditure on acquisition, expansion, modernisation and their replacement. These decisions include purchase of land, building, plant and machinery, launching a new product line or investing in advanced techniques of production. Major expenditures such as those on advertising campaign or research and development programme having long term implications for the firm are also examples of capital budgeting decisions. …” |