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Business Studies · 2024 · 4 marks
CBSE 2024 · Region 4 · Set 1 · Q30
Kaysons Ltd. was a reputed company manufacturing automotive parts for
electric vehicles. As the demand for the electric vehicles grew, Kaysons
Ltd. needed more capital to keep up with the demand for automotive
parts. Atul, the Finance Manager of Kaysons Ltd. suggested that the
company should raise funds through a public issue of shares as the stock
market was bullish. The Chief Executive Officer fully understood that this
process of raising funds would not only reduce the managements’ holding
in the company but would also require considerable expenditure. Even
then he agreed with the Finance Manager and the public issue of shares
was made complying with the guidelines of Securities and Exchange
Board of India.
Identify and state four factors affecting choice of capital structure being
discussed above.
Marking-scheme solution
(i)
Stock Market Conditions:
If the stock markets are bullish, use of equity is preferred as they are
more easily sold even at a higher price and in bearish conditions, it’s
better to opt for debt
(ii)
Control:
Issue of more equity may lead to dilution of management’s control over
the business.
(iii)
Floatation Costs:
Process of raising resources also involves some cost. These
considerations may also affect the choice between debt and equity
(iv)
Regulatory Framework:
While deciding the capital structure, the regulatory framework provided
by law e.g. SEBI should be considered.
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CBSE Class 12 Business Studies past-paper question from the 2024board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.