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Business Studies · 2025 · 3 marks
CBSE 2025 · Region 5 · Set 1 · Q23
(a) Explain the following factors affecting the fixed capital requirements of a company: (i) Nature of Business (ii) Choice of Technique (iii) Growth…
(a)
Explain the following factors affecting the fixed capital
requirements of a company:
(i)
Nature of Business
(ii)
Choice of Technique
(iii)
Growth Prospects
OR
(b)
Explain the following factors affecting financing decision
of a company:
(i)
Fixed Operating Costs
(ii)
Control Considerations
(iii)
State of Capital Market
Marking-scheme solution
Factors affecting the fixed capital requirements of a
company:
• (i) Nature of Business:
A trading concern needs lower investment in fixed
• assets compared with a manufacturing organization.
As a trading concern does not require to purchase
plant and machinery etc.
• (ii) Choice of Technique:
A capital-intensive organisation requires higher
investment in plant and machinery , thus the
requirement of fixed capital for such organisations
• would be higher.
Labour intensive organisations on the other hand
require less investment in fixed assets. Hence, their
fixed capital requirement is lower.
• (iii) Growth Prospects:
When a company expects higher growth in the
future, it creates higher capacity in order to meet the
• anticipated higher demand quicker.
This requires larger investment in fixed capital.
Factors affecting financing decision of a company:
• (i) Fixed Operating Costs:
If a business has high fixed operating cost 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)
Control Considerations:
• $\displaystyle 13$
Issue of more equity may lead to dilution of
• management’s control over the business.
Debt financing has no such implication.
• (iii) State of Capital Market:
During the period when stock market is rising, more
• people invest in equity.
However, depressed capital market may make issue
of equity shares difficult for any 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.