Question

1. Name the three types of financial management decisions? For each type give an example of a typical business transaction.

Answer 1

The three types of financial management decisions are as follows :-

1) Investment decision

2. Financing Decison

3. Dividend decision

Examples of business transaction of each type :-

1) if a firm wants to buy a new machine for its plant, investment decision includes variables like calculating NPV, depreciation cost, replacement costs etc.

2.) If a firm wants to raise new capital for expansion then selecting different sources of capital including debt, equity investment , preferred stock investment or combination of each requires due dilligence. This is related to financing decision

3) Dividend policy relates to how much money a firm want to distribute in dividends or how much ro retain in retained earnings. These all are included in dividend decision

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