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Business Studies · 2024 · 6 marks
CBSE 2024 · Region 5 · Set 3 · Q32
(a) Explain the following factors affecting the working capital requirements of a business: (i) Credit allowed (ii) Production cycle (iii)…
(a)
Explain the following factors affecting the working capital
requirements of a business :
(i)
Credit allowed
(ii)
Production cycle
(iii)
Availability of raw material
OR
(b)
Explain the following factors affecting the dividend decision of a
company :
(i)
Growth opportunities
(ii)
Cash flow position
(iii)
Shareholders’ preference
Marking-scheme solution
(i)
Credit allowed
§ Different firms allow different credit terms to their customers. These
depend upon the level of competition that a firm faces as well as the credit
worthiness of their clientele.
§ A liberal credit policy results in higher amount of debtors, increasing the
requirement of working capital.
(ii)
Production cycle
§ Production cycle is the time span between the receipt of raw material and
their conversion into finished goods.
§ Working capital requirement is higher in firms with longer processing cycle
and lower in firms with shorter processing cycle.
(iii)
Availability of raw material
§ If the raw materials and other required materials are available freely and
continuously, lower stock levels may suffice.
§ If, however, raw materials do not have a record of uninterrupted
availability, higher stock levels may be required.
OR
Q. (b) Explain the following factors affecting the dividend decision of a
company:
(i)
Growth opportunities
(ii)
Cash flow position
(iii)
Shareholders’ preference
(i)
Growth opportunities
§ Companies having good growth opportunities retain more money out of
their earnings so as to finance the required investment.
§ The dividend in growth companies is, therefore, smaller, than that in the
non– growth companies.
(ii)
Cash flow position
§ The payment of dividend involves an outflow of cash.
§ A company may be earning profit but may be short on cash. Availability of
enough cash in the company is necessary for declaration of dividend.
(iii)
Shareholders’ preference
§ There are always some shareholders who depend upon a regular income
from their investments.
§ If the shareholders in general desire that at least a certain amount is paid as
dividend, the companies are likely to declare the same.
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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.