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Business Studies · 2025 · 3 marks
CBSE 2025 · Region 5 · Set 2 · Q23
Explain the following factors affecting the fixed capitalrequirements of a company:(i)Scale of Operations(ii)Technology Upgradation(iii)DiversificationExplain the following factors affecting the capitalbudgeting decision of a company:(i)Cash flows of the project(ii)The rate of return(iii)The investment criteria involved
Explain the following factors affecting the fixed capital
requirements of a company:
(i)
Scale of Operations
(ii)
Technology Upgradation
(iii)
Diversification
Explain the following factors affecting the capital
budgeting decision of a company:
(i)
Cash flows of the project
(ii)
The rate of return
(iii)
The investment criteria involved
Marking-scheme solution
Factors affecting fixed capital requirements of a company:
(i)
Scale of Operations:
• $\displaystyle 12$
Larger organisations operating at a higher scale needs
• bigger plant, more space etc.
Such organisation requires higher investment in fixed
capital when compared with the small organisation.
• (ii) Technology Upgradation:
The organisations using assets prone to obsolescence
• requires faster replacements.
So, higher investments in fixed capital may be required in
to purchase such assets.
• (iii) Diversification
A firm may choose to diversify its operations for various
reasons because of which fixed capital requirements
• increase.
Such firms require more investment in fixed capital
Factors affecting the capital Budgeting decision of a
company:
• (i) Cash flows of the project:
When a company takes an investment decision involving
huge amount it expects to generate some cash flows over
• a period.
The amount of these cash flows should be carefully
analysed before considering a capital budgeting decision.
• (ii) The rate of return:
The rate of return of the project and its calculations are
based on the expected returns from each proposal and the
• assessment of the risk involved.
So, project with higher rate of return should be selected.
(iii)
The investment criteria involved
• $\displaystyle 13$
The decisions to invest in a particular project involves a
number of calculations regarding the amount of
investment, interest rate, cash flows and rate of return.
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CBSE Class 12 Business Studies past-paper question from the 2025board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.