Question

Explain the following factors affecting the requirements of fixed capital: (i) Technology upgradation (ii) Choice of technique OR Explain the…

Accepted Answer

(a) (i) Technology upgradation  In certain industries, assets become obsolete sooner and their replacements become due faster.  Higher investment in fixed assets may, therefore, be required in such cases. (ii) Choice of technique  A capital-intensive organisation requires higher investment in plant and machinery as it relies less on manual labour. 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. OR (b) (i) Stability of earnings  Other things remaining the same, a company having stable earning is in a better position to declare higher dividends.  As against this, a company having unstable earnings is likely to pay smaller dividend. (ii) Taxation policy  If tax on dividend is higher, it is better to pay less by way of dividends.  As compared to this, higher dividends may be declared if tax rates are relatively lower.

Explain the following factors affecting the requirements of
fixed capital:
(i)
Technology upgradation
(ii)
Choice of technique

Marking-scheme solution

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(a)OR(b)Explain the following factors affecting the requirements offixed capital:(i)Technology upgradation(ii)Choice of techniqueExplain the following factors affecting dividend decision:(i)Stability of earnings(ii)Taxation policy

Marking-scheme solution

More from Financial Management

Explain the following factors affecting the requirements of
fixed capital:
(i)
Technology upgradation
(ii)
Choice of technique