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Business Studies · 2024 · 4 marks
CBSE 2024 · Region 2 · Set 3 · Q27
(a) Explain the following factors affecting the requirements of fixed capital: (i) Growth prospects (ii) Diversification
(a)
Explain the following factors affecting the requirements of fixed
capital :
(i)
Growth prospects
(ii)
Diversification
OR
(b)
Explain the following factors affecting dividend decision :
(i)
Stock market reaction
(ii)
Access to capital market
Marking-scheme solution
(i)
Growth prospects
Higher growth of an organization generally requires higher
investment in fixed assets.
Even when such growth is expected to meet the anticipated higher
demand, larger investment in fixed assets and consequently larger
fixed capital is required.
(ii)
Diversification
A firm may choose to diversify its operations for various reasons.
With diversification, fixed capital requirements increase as
investment in fixed capital increases.
Explain the following factors affecting dividend decision :
(i)
Stock market reaction
(ii)
Access to capital market
(b)(i)
Stock market reaction
Investors, in general, view an increase in dividend as good news
and stock prices react positively to it.
The possible impact of dividend policy on the equity share price is
one of the important factors considered by the management while
taking a decision about dividend.
(ii)
Access to capital market
Large and reputed companies generally have easy access to the
capital market and, therefore, may depend less on retained earning
to finance their growth.
These companies tend to pay higher dividends than the smaller
companies which have relatively low access to the market.
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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.