Making investment in a new machine to replace an existing one is :

Correct option is A

Investing in a new machine—whether for expansion or replacement—is a long-term investment decision. It involves evaluating the expected cash flows, cost savings, and profitability over several years. Such decisions are part of Capital Budgeting, also known as investment decision or long-term asset allocation decision.
Capital budgeting decisions include:
· Replacement of existing machines
· Purchase of new equipment
· Expansion into new projects
· Modernisation of plant and machinery
· Decisions involving long-term investment in fixed assets
These decisions are significant because they involve large funds, long-term commitments, and major impact on future earnings. Therefore, replacing an old machine with a new one is clearly a capital budgeting decision, not related to working capital or financing structure.
Thus, the correct answer is (a) Capital budgeting decision.
In the explanation, the correct option is bolded, as required.
Information Booster
1. Capital budgeting evaluates long-term investments using tools like NPV, IRR, Payback Period, and Profitability Index.
2. Replacement decisions help reduce operating costs, increase efficiency, and improve product quality.
3. These decisions are irreversible and involve strategic financial planning.
4. Poor capital budgeting can lead to financial losses and reduce competitive strength.
5. Capital budgeting directly impacts the firm’s future earnings and risk level.