CBSE 2025 · Region 4 · Set 3 · Q30

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

(i)

Shyam to Arun.

(ii)

State any three factors discussed by Shyam in the above

(ii)

paragraph, affecting the concept identified in (i) above.