Read the following passage and answer the question.

Neeru, the finance manager, and Mani, the managing director of ABCD Ltd., were discussing how to raise funds for modernizing their existing plant. Neeru suggested using equity, pointing out that the Sensex has risen by 6,000 points in the last 4 years. However, Mani wanted to choose debt as the source of finance. The company has high operating costs over time.

Modernizing their existing plant is what type of decision?

Capital budgeting decision

The correct answer is option 2- Capital budgeting decision.

Modernizing an existing plant involves making long-term investment decisions regarding the allocation of resources for improving or upgrading assets. This is a key aspect of capital budgeting, where companies evaluate and decide on large investments, such as purchasing new equipment or upgrading facilities.