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Business Studies · 2024 · 3 marks
CBSE 2024 · Region 4 · Set 1 · Q22
(a) Explain the following as factors affecting ‘Financing Decision’: (i) Fixed operating costs and (ii) Cash flow position of the company
(a)
Explain the following as factors affecting ‘Financing Decision’ :
(i)
Fixed operating costs and
(ii)
Cash flow position of the company
OR
(b)
State any three points of difference between ‘Primary Market’ and
‘Secondary Market’.
Marking-scheme solution
(i)
Fixed Operating Costs:
If a business has high fixed operating costs, it must reduce fixed
financing costs. Hence, lower debt financing is better.
Similarly, if fixed operating cost is less, more of debt financing
may be preferred.
(ii)
Cash Flow Position of the Company:
A stronger cash flow position may make debt financing more
viable than funding through equity.
Q. (b) State any three points of difference between 'Primary
Market' and Secondary Market'.
Distinction between Primary Market and Secondary Market
| S.N O. | PRIMARY MARKET | SECONDARY MARKET |
| $\displaystyle 1$ | It deals with issue of new securities | It deals with sale and purchase of existing securities only. |
| $\displaystyle 2$ | The company sells securities either directly to the investors or through an intermediary | The ownership of existing securities is exchanged between investors without involvement of company |
| $\displaystyle 3$ | It promotes capital formation directly as funds flow directly from savers to investors | It promotes capital formation indirectly |
| $\displaystyle 4$ | Only buying of securities takes place in the primary market | Both buying and selling of securities can take place |
| $\displaystyle 5$ | Prices are determined by the management of company | Prices are determined by demand and supply for the securities |
| $\displaystyle 6$ | There is no fixed geographical location | It is located at a specified place. |
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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.