After completing his civil engineering degree, Sankalp decided to start his own business. He started a construction company ‘Sankalp Builders’. He entered into an agreement for construction of

residential flats on a land of $\displaystyle 30$ acres. Building of the flats on such a large scale required expensive machinery like bulldozers, excavators, etc. He had the option to buy the machinery or take it on lease. Though Sankalp was in favour of buying, his father advised him to take the decision with caution as construction machinery becomes outdated very fast and needs to be replaced. He also told Sankalp that in future he may think of diversifying his operations and would need funds for that too. Identify and state any four factors discussed above affecting the fixed capital requirements of ‘Sankalp Builders'.

Factors affecting the fixed capital requirement are- 1. Nature of business: A trading concern needs a lower investment in fixed assets as compared to a manufacturing concern since it doesn’t require to purchase plant and machinery. 1. Scale of Operations: A larger organisation operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organisation. 2. Technology Upgradation: In industries where assets become obsolete sooner, higher investment in fixed assets would be required. 3. Financing Alternatives: Availability of leasing facilities, may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. 4. Diversification: A firm may choose to diversify its operations which results in increase in fixed capital requirements.