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Business Studies · 2024 · 4 marks
CBSE 2024 · Region 1 · Set 3 · Q28
(a) Explain how the following factors affect the working capital requirement of a business: (i) Production cycle (ii) Availability of raw material
(a)
Explain how the following factors affect the working capital
requirement of a business :
(i)
Production cycle
(ii)
Availability of raw material
OR
(b)
Explain how the following factors affect the choice of capital
structure of a company :
(i)
Control
(ii)
Return on Investment
Marking-scheme solution
Factors affecting the working capital requirement of a
business are:
• (i) Production cycle:
Production cycle is the time span between the receipt of raw
• material and their conversion into finished goods.
Working capital requirement is higher in firms with longer
processing cycle and lower in firms with shorter processing
cycle.
• (ii) Availability of raw material:
If the raw materials and other required materials are
available freely and continuously, lower stock levels may
• suffice.
If, however, raw materials do not have a record of
uninterrupted availability, higher stock levels may be
required.
OR
Q(b). Explain how the following factors affect the choice of
capital structure of a company:
(i)
Control
(ii)
Return on Investment
Factors affecting the choice of capital structure of a
company are:
• (i) Control:
Debt does not cause dilution of control.
• $\displaystyle 18$
A public issue of equity may reduce the management’s
holding in the company and make it vulnerable to
takeover.
(ii)
Return on Investment:
• If the ROI of the company is higher than cost of debt , it
can choose to use trading on equity to increase its EPS.
• In such a case, it can use debt.
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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.