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Business Studies · 2025 · 4 marks
CBSE 2025 · Region 4 · Set 1 · Q30
After seeing an overwhelming response from people for their homes, Arun, the owner of a leading construction company 'Luxury At Home' decided to…
After seeing an overwhelming response from people for their
homes, Arun, the owner of a leading construction company
'Luxury At Home' decided to launch new projects in eight
more cities across India. This decision would require
additional investment of Rs.150 crores. Shyam, the finance
manager advised Arun that instead of raising the entire
amount through equity, it would be better to raise funds with a
judicious mix of $\displaystyle 40$% equity and $\displaystyle 60$% debt.
Shyam explained that since the company was earning sufficient
profits, they could also take advantage of trading on equity to
maximise earning per share. He also suggested that raising this
debt through a loan from a financial institution would be
better as this would involve a lower cost. He further added that
debt was also beneficial as it would not dilute the
management's holding in the company.
After giving due thought, Arun agreed to Shyam's suggestions.
(i)
State the concept of financial management suggested by
Shyam to Arun.
(ii)
State any three factors discussed by Shyam in the above
paragraph, affecting the concept identified in (i) above.
Marking-scheme solution
(i)
The concept of financial management suggested by Shyam
to Arun is :
Capital Structure which refers to the mix between owners and
borrowed funds.
(ii)
The three factors discussed by Shyam are:
(i)
If the Return on Investment (ROI) of the company is higher,
it can choose to use Trading on Equity to increase its
Earning Per Share (EPS) i.e., its ability to use debt is
greater.
B
(ii) Public issue of shares and debentures require high floatation
cost whereas getting a loan from a financial institution may
not cost so much.
(iii)
Debt does not cause dilution of control whereas a public
issue of equity may reduce the management’s holding in the
company.
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CBSE Class 12 Business Studies past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.