Of the following, which would not constitute an investment decision by the financial managers of the firm?

Question

BlackTom AI · Accepted Answer

Framing the question, we’re asked to determine which of the listed actions would not be classified as an investment decision by the firm’s financial managers. Investment decisions typically involve acquiring long-term assets or investments that will generate future benefits, rather than actions aimed at financing, restructuring, or divesting.
Option 1: GHI Ltd buys 10 new packaging machines for its factory for $1.2 million. This is a classic capital budgeting decision: acquiring a physical fixed asset that will be used in production over multiple years. It directly affects capacity and productivity and involves capital expenditure and depreciation considerations. Therefore, it is an investment decision.
Option 2: MNO Ltd buys 10 per cent of its outstanding shares for $8 million. If interpreted as acquiring treasury stock (own company shares), this is a financing decision aimed at altering the capital structure or distributing funds to shareholders, not an investment in productive assets or external business opportunities. From a corporate finance perspective, purchasing its own shares is generally categorized as a financing activity, not an investment decision. However, if the phrase were intended to mean acquiring a stake in another company, it would be an investment decision; the wording typically suggests a buyback of the company’s own shares, which tilts toward financing.
Option 3: ABC Ltd buys 20 per cent of the outstanding shares of DEF Ltd for $9 million. This represents acquiring a significant minority stake in another company. Such an investment in an external entity’s equity is a portfolio or strategic investment decision and falls squarely under investment decisions because it uses capital to acquire income-producing or strategic assets.
Option 4: All the options are investment decisions. This statement would be false if any of the listed actions clearly do not constitute an investment decision as defined by the firm’s decision framework. Since at least one item (and potentially two, depending on interpretation of option 2) may not be an investment decision, this option is unlikely to be correct.
Option 5: JKL Ltd sells a retail outlet that it owns for $2.1 million. Selling a long-term asset is a disinvestment or divestment action. It exchanges an asset for cash and is typically classified as a financing or strategic restructuring decision rather than an investment decision aimed at generating future production capacity or returns from new investments.
In summary, options involving the purchase of new productive assets (Option 1) or external equity investments (Option 3) align with investment decisions. Options involving changes to the existing capital structure, treasury activity, or divestment of an asset (Options 2 and 5) are typically not categorized as investment decisions in the standard framework used by financial managers. The exact classification of Option 2 hinges on whether the shares being purchased are the firm’s own (treasury stock, financing) or of another firm (external investment); the conventional reading points toward financing for a buyback. The key distinction is whether the action is about committing capital to acquire/expand productive assets or external investments (investment decisions) versus financing or divestment activities (not investment decisions).

FINC5001 (ND) 1.6: Module 1 Practice Problems

Of the following, which would not constitute an investment decision by the financial managers of the firm?

查看解析

登录即可查看完整答案

类似问题

In a consumer society, many adults channel creativity into buying things

Economic stress and unpredictable times have resulted in a booming industry for self-help products

People born without creativity never can develop it

A product has a selling price of $20, a contribution margin ratio of 40% and fixed cost of $120,000. To make a profit of $30,000. The number of units that must be sold is: Type the number without $ and a comma. Eg: 20000

Which of the following statement regarding cost is correct:

Under the assumptions used in cost-volume-profit analysis, as the activity increases:

The CVP and break-even analysis are supported by a range of important assumptions. Which of the following is not an assumption of the CVP:

The break-even point is that at which:

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单