Solution
Green Innovations is:
- Taking its profits
- Putting them into growth and diversification projects
- Making decisions about where to invest company money
- Thinking about long-term impact
Which financial management concept is this?
Option 1: Financing Decision
What it means: How to GET money (loans, selling shares, etc.)
Why it's wrong: The company already HAS the money (profits). They're not trying to raise new capital. They're deciding what to DO with existing money.
Option 2: Dividend Decision
What it means: Should we give profits to shareholders OR keep it in the company?
Why it's wrong: Yes, they decided to keep the profits (not give dividends), but the question focuses on what happens AFTER that decision - where exactly are they putting this retained money?
Option 3: Investment Decision (Capital Budgeting)
What it means: Deciding which projects to invest in and how to allocate capital to different opportunities.
Why it's CORRECT: The statement says they're "allocating firm's capital to different projects" - this is literally the definition of Investment Decision!
Key phrases that prove it:
- "allocating firm's capital" choosing where to invest
- "to different projects" capital budgeting
- "long term implications" typical of investment decisions
Option 4: Financial Planning
What it means: The OVERALL process that includes all financial decisions (investment, financing, dividend, etc.)
Why it's wrong: Too broad! While financial planning includes everything, the statement is specifically about allocating capital to projects, which is the Investment Decision component.
Simple Memory Trick:
Financing Decision How to GET money
Investment Decision Where to PUT money (This one!)
Dividend Decision How much to GIVE to shareholders
More from this set:
Question 47