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Business Studies · 2024 · 4 marks
CBSE 2024 · Region 1 · Set 1 · Q28
(a) Explain how the following factors affect the working capital requirement of a business: (i) Operating efficiency (ii) Credit availed
(a)
Explain how the following factors affect the working capital
requirement of a business :
(i)
Operating efficiency
(ii)
Credit availed
OR
(b)
Explain how the following factors affect the choice of capital
structure of a company :
(i)
Flexibility
(ii)
Cost of equity
Marking-scheme solution
Factors affecting working capital requirement of a business:
• (i) Operational efficiency:
Firms manage their operations with varied degrees of
• efficiency.
Such efficiencies may reduce level of raw material,
finished goods and debtors, resulting in lower
working capital.
• (ii) Credit availed:
A firm allows credit to its customers and also gets credit
• from its suppliers.
To the extent the firm avails credit on purchases, the
working capital requirement is reduced.
OR
Q(b). Explain how the following factors affect the choice of
capital structure of a company:
(i)
Flexibility
(ii)
Cost of equity
Factors affecting choice of capital structure:
• (i) Flexibility:
If a firm uses its debt potential to the full, it loses
• flexibility to issue further debt.
It must maintain some borrowing power to take care of
unforeseen circumstances.
• (ii) Cost of equity:
When a company increases debt, the financial risk
faced by the equity holders, increases. Consequently,
• their desired rate of return may increase.
If debt is used beyond a level, cost of equity may
go up and share price may decrease sharply inspite
of increased earning per share(EPS).
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CBSE Class 12 Business Studies past-paper question from the 2024 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.