Question

______ involve identifying various sources of funds and deciding the best combination for raising the funds. 

Options

• Investment decisions

• Financial decisions

• Dividend Decisions

• All of the above

Answer 1

Financial decisions

Explanation - 

Such decisions involve identifying various sources of funds and deciding the best combination for raising the funds. The main sources for raising funds are shareholders' funds (referred as equity) and borrowed funds (referred as debt). Based on the cost involved, risk and profitability a company must judiciously decide the combination of debt and equity to be used. For example, while debt is considered to be the cheapest source of finance, higher debt increases the financial risk. Financial decisions taken by a company affects its overall cost of capital and the financial risk.