Financial planning is not equivalent to, or a substitute for, financi…

The correct answer is Option (2) → Smooth operations by focusing on fund requirements and their availability

Option (1) Choosing the best investment and financing alternatives by focusing on their costs and benefits — Incorrect. This is the aim of financial management. It compares the costs and benefits of the alternatives and picks the best one.

Option (2) Smooth operations by focusing on fund requirements and their availability — Correct. Financial planning prepares a financial blueprint of the firm’s future operations. It forecasts how much money is needed and when, so that funds are ready on time and work runs without a break. It also stops the firm from raising more money than it needs.

Option (3) Increasing the wealth of the shareholders of the company — Incorrect. This is the objective of financial management, which tries to raise the market price of the equity shares.

Option (4) Optimal procurement as well as usage of finance — Incorrect. This is what financial management is concerned with: getting funds at a low cost and using them well.

Financial planning works out the fund needs and their timing; financial management chooses the best sources and uses of funds to increase the shareholders’ wealth.