✓ Board-verified
Business Studies · 2025 · 3 marks
CBSE 2025 · Region 5 · Set 2 · Q23
(a) Explain the following factors affecting the fixed capital requirements of a company: (i) Scale of Operations (ii) Technology Upgradation (iii)…
(a)
Explain the following factors affecting the fixed capital
requirements of a company:
(i)
Scale of Operations
(ii)
Technology Upgradation
(iii)
Diversification
OR
(b)
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.
More from Financial Management
- Which of the following is NOT a factor affecting capital structure of a company?2023 · asked 2×
- State any three points of importance of Financial Planning. OR State any three factors that determine the requirement of fixed capital of a company.2023 · asked 2×
- Read the following statements carefully: Statement I: Higher fixed operating costs result in higher business risk. Statement II: If the firm’s…2026
- Match the factors affecting fixed capital requirements given in the Column-I with their explanations given in Column-II: Column – I Column - II A…2023
- 'Payal Ltd.' plans to start manufacturing solar panels which will require a significant amount of investment in machinery. The machinery which they…2025
- State any four factors that affect the decision related to how much profit is to be distributed and how much profit is to be retained in the business.2023
- The risk related to inability to meet fixed financial charges like interest payment and other repayment obligations is known as:2025
- ‘Ratan Ltd.’ and ‘Lara Ltd.’ are two companies with each having a capital employed of ₹ 20,00,000. ‘Ratan Ltd.’ had raised funds by issuing shares…2026
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.