The decision of raising funds through debt or equity constitutes which type of decision ?

Financing Decision

The correct answer is option (3) : Financing Decision

1. Investment decision - It relates to how the firm's funds are invested in different assets. Investment decision can be longterm or short-term. A long-term investment decision is also called a Capital Budgeting decision.

2. Capital Budgeting Decision - A long term investment decision eg - investing a factory or buying a machinery.

3. 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.