Read the following passage carefully and answer the questions given below.

'Laxmi Enterprise' is a textile manufacturing firm. It has been consistently earning good profits for many years. This year, too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in the future. Now they wished to diversify their business. The CEO of Laxmi Enterprise is considering two options, either to diversify into manufacturing cosmetics or switches. So they wanted to purchase land, to set up a manufacturing unit in the backward area of Assam, which would lead to the generation of employment opportunities in the area, but only after fulfilling all legal requirements and taking appropriate steps to ensure that the environment was not polluted. The finance manager of the company, Mr. Vikrant was asked by the management to prepare a report on the factors that should be considered while making their decisions.

Which of the following decision is being considered by the management in the above case?

Investment Decision

The correct answer is Option (1) → Investment Decision

The decision being considered by the management is an Investment Decision. This is because the company is evaluating a long-term investment in a new project, specifically, purchasing land and setting up a manufacturing unit to diversify its business. This type of decision, also known as a capital budgeting decision, involves allocating a large amount of funds to assets that will generate returns over a long period. The other options are incorrect:

• Financing Decision → Relates to how funds are raised (equity, debt, etc.), but here the firm already has enough cash.

• Dividend Decision → Relates to how much profit to distribute to shareholders, not relevant here.

• Working Capital Decision → Deals with short-term assets and liabilities (like inventory, debtors, creditors), not with long-term investments.