Mr. Z wants to expand his business. So he borrowed Rs 20,00,000 from his friend Mr X. With the help of this fund he has to increase his productivity. But he decided that he will divide this fund into two parts Fixed Capital and Working Capital.

Identify the financial decision he has taken for distribution of funds into fixed and working capital.

Investment Decision

The correct answer is Option (1) → Investment Decision.

The decision described in the case — to divide borrowed funds into Fixed Capital and Working Capital actually pertains to Investment Decisions.

Investment Decision involves how to allocate or invest the funds into various assets or projects, such as long-term investments in Fixed Capital (e.g., machinery, buildings) and short-term investments in Working Capital (e.g., raw materials, inventory, receivables).

Investment decision- A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets. Investment decision can be long-term or short-term.