Question

Which financial decision determines how the funds raised are invested in different assets?

• A. Financing Decision
• B. Investment Decision
• C. Dividend Decision
• D. Capital Budgeting Decision

Hint:

Remember: Investment Decision = Where to invest funds? Financing Decision = How to raise funds? Dividend Decision = How much profit to distribute?

Answer 1

The Correct Option is B

Concept: Financial management involves taking important decisions regarding procurement, utilization and distribution of funds. The three major financial decisions are:
• Investment Decision
• Financing Decision
• Dividend Decision Among these, the Investment Decision determines where and how the available funds should be invested.

Step 1: Understand the meaning of Investment Decision.
Investment Decision refers to the decision regarding allocation of funds among different assets and projects. Management has to decide:
• Which assets should be purchased.
• Which projects should be undertaken.
• How much money should be invested.
• Whether an investment will generate sufficient returns.

Step 2: Understand its importance.
Investment decisions are often called the most important financial decisions because they directly affect:
• Future profitability
• Growth of the business
• Earning capacity
• Risk level of the firm Wrong investment decisions may result in losses and inefficient use of funds.

Step 3: Relate the concept to the given question.
The question asks which financial decision determines how the funds raised are invested in various assets. This function is performed by the Investment Decision. \[ \boxed{\text{Investment Decision}} \] Therefore, the correct answer is: \[ \boxed{\text{Option (B)}} \]