Consider the following statements about investment decisions:
(A) Short-term investment decisions are also called working capital decisions.
(B) Working capital decisions are concerned with the levels of cash, inventory and receivables.
(C) Working capital decisions affect the day-to-day working of a business.
(D) Efficient cash management, inventory management and receivables management are essential ingredients of sound capital budgeting.
(E) A long-term investment decision is also called a financing decision.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C) only
(A) Short-term investment decisions are also called working capital decisions. — Correct. An investment decision can be long-term or short-term. The short-term ones are known as working capital decisions.
(B) Working capital decisions are concerned with the levels of cash, inventory and receivables. — Correct. Cash, inventory and receivables are current assets. Working capital decisions fix how much of each the firm keeps.
(C) Working capital decisions affect the day-to-day working of a business. — Correct. These decisions shape the daily running of the firm. They also affect its liquidity and profitability.
(D) Efficient cash management, inventory management and receivables management are essential ingredients of sound capital budgeting. — Incorrect. Managing cash, inventory and receivables is part of sound working capital management. Capital budgeting is the long-term side, such as buying a new machine or opening a branch.
(E) A long-term investment decision is also called a financing decision. — Incorrect. A long-term investment decision is called a capital budgeting decision. The financing decision is a separate decision about how much to raise from which source.
NCERT (2026-27 Edition): “Investment Decision … Investment decision can be long-term or short-term. A long-term investment decision is also called a Capital Budgeting decision. …” “Investment Decision … Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect the day-to-day working of a business. These affect the liquidity as well as profitability of a business. Efficient cash management, inventory management and receivables management are essential ingredients of sound working capital management.” |