Which financial decision relates to committing the company's finances on a long term basis to different assets?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Capital Budgeting decision
Option (1) Capital structure decision — Incorrect. This decides the mix of debt and equity used to raise money. It is about sources of funds, not about assets.
Option (2) Financing Decision — Incorrect. The financing decision is about how much money to raise and from which sources. It does not put money into assets.
Option (3) Capital Budgeting decision — Correct. A long-term investment decision is called a Capital Budgeting decision. It involves committing the finance on a long-term basis, for example buying a new machine or opening a new branch.
Option (4) Working Capital Decision — Incorrect. This is a short-term investment decision. It deals with cash, stock and debtors, not long-term assets.
NCERT (2026-27 Edition): “Investment Decision … Investment decision can be longterm or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a longterm basis. For example, making investment in a new machine to replace an existing one or acquiring a new fixed asset or opening a new branch, etc. …” “…Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. …” |