Solution

The Financial Decisions involves the following three decisions: Investment Decisions - it relates to the determination of total amount of assets to be held in the firm, the composition of these assets and the business risk complexions of the firm as perceived by its investors. It is the most important financial decision. Since funds involve cost and are available in a limited quantity, its proper utilisation is very necessary to achieve the goal of wealth maximisation. The long-term investment decision is referred to as the capital budgeting and the short-term investment decision as working capital management. Financing Decisions - Once the firm has taken the investment decision and committed itself to new investment, it must decide the best means of financing these commitments. Since, firms regularly make new investments; the needs for financing and financial decisions are ongoing. It involves deciding on the capital structure of the company. Dividend Decision or Profit distribution decision - The third major financial decision relates to the disbursement of profits back to investors who supplied capital to the firm. The term dividend refers to that part of profits of a company which is distributed by it among its shareholders.