Question

Explain what is the dividend decision and financing decision and investment decision in financial management giving examples (100)marks

Answer 1

Investment decision : A finance decision is concerned with how the firm’s funds are invested in different assets is known as investment decision. Investment decision can be long-term or short-term. Capital budgeting decisions come under investment decision. Example : Purchase of plant and machinery, takeover decision

Financing decision : The financing decision is concerned with various long term sources from which the finance is to be raised like, equity shares, preference shares, debentures, bank loans etc. It is the decision on the capital structure or capital mix of the company. Example : Issue of shares, taking loans

Dividend decision : Dividend is the portion of the profit distributed to shareholders. Dividend decision is deciding how much of the profit of the company should be distributed among shareholders and how much should be retained in the company for the future projects. Example : Deciding the pay out ratio and retention ratio