The correct answer is: C. capital budgeting decisions.
Capital budgeting decisions are the decisions that a company makes about whether or not to invest in long-term assets. These decisions are important because they can have a significant impact on the company’s future cash flows and profitability.
The market value of a firm is the total value of all of the company’s outstanding shares. It is determined by the market’s perception of the company’s future prospects. The market value of a firm is affected by a number of factors, including the company’s capital budgeting decisions.
When a company makes a capital budgeting decision, it is essentially deciding whether or not to invest in a project that will generate future cash flows. If the project is successful, it will increase the company’s future cash flows and profitability. This will, in turn, increase the company’s market value.
Conversely, if the project is unsuccessful, it will decrease the company’s future cash flows and profitability. This will, in turn, decrease the company’s market value.
Therefore, capital budgeting decisions are an important factor that affects the market value of a firm.
A. Dividend decisions are the decisions that a company makes about how much of its earnings to distribute to shareholders as dividends. These decisions are important because they can affect the company’s future cash flows and profitability. However, they do not have a direct impact on the company’s market value.
B. Working capital decisions are the decisions that a company makes about how much cash and inventory to hold. These decisions are important because they can affect the company’s liquidity and profitability. However, they do not have a direct impact on the company’s market value.
D. Trade-off between cost and risk is a concept that is used in financial decision-making. It refers to the idea that there is a trade-off between the cost of a project and the risk of the project. A project with a higher cost is likely to have a higher risk, and vice versa. However, the trade-off between cost and risk is not always linear. In some cases, a project with a higher cost may actually have a lower risk.