Hey students..lets talk about finance functions. The finance functions are divided into 3 major decisions, i.e. investment, financing & dividend decisions. It is correct to say that these decisions are inter related because the underlying objective of these 3 decisions is the same, i.e. maximisation of shareholder's wealth. Since investment, financing & dividend decisions are all interrelated, one has to consider the joint impact of these decisions on the market price of the company's share & these decisions should also be solved jointly.
The decision to invest in a new project needs the financing for the investment. The financing decision, in turn, is influnced by & influences dividend decision because retained earnings used internal financing deprive shareholders of their dividends. An efficient financial management can ensure optimal joint decisions. This is possible by evaluating each decision in relation to its effect on the shareholder's wealth.
