Question

Financial Decisions. Which of the following are investment decisions, and which are financing decisions? (LO1-1) a. Should we stock up with inventory ahead of the holiday season? b. Do we need a bank loan to help buy the inventory? c. Should we develop a new software package to manage our inventory? d. With a new automated inventory management system, it may be possible to sell off our Birdlip warehouse. e. With the savings we make from our new inventory system, it may be possible to increase our dividend. f. Alternatively, we can use the savings to repay some of our long-term debt.

Answer 1

Answer: Investing= a, c, d

financing = b, e, f

Explanation: Decisions related to use of available funds in the investment of different assets involves investment decisions. Decisions relating to borrowing and allocation of funds for making investment decisions are called financing decisions.

From above, we can conclude that,

1. Stocking up of inventory involves investment decisions.

2. Considering of bank loan involves financing decision.

3. Managing inventory involves investing decisions.

4. Selling of warehouse is an investment decision as warehouse is a fixed asset.

5. Increment in dividend is a financing decision.

6. Repaying long term debt involves financing decisions.