Final answer:
Capital budgeting decisions generally impact the asset portion of the balance sheet the most, as they involve long-term investments in assets such as machinery and buildings. Financing these investments through various means like investors, reinvesting profits, debt, or equity also affects the balance sheet, but the asset side sees the most significant changes.
Step-by-step explanation:
Capital budgeting decisions generally have the most effect on the asset portion of the balance sheet. When a firm engages in capital budgeting, it typically involves significant expenditures on long-term assets, such as machinery, new plants, or research and development projects. These assets can significantly impact a company's balance sheet by increasing the company's long-term assets.
To finance such investments, firms can utilize financial capital through various avenues such as early-stage investors, reinvesting profits, issuing bonds, or selling stock. Each of these methods has implications for the balance sheet. For example, borrowing through banks impacts both assets (by adding a new asset from the loan proceeds) and liabilities (by increasing long-term liabilities with the new loan).