✓ Board-verified
Business Studies · 2022 · 5 marks
CBSE 2022 · Region 3 · Set 2 · Q11
NB Ltd. is India's largest manufacturer of cement. Its operations are spread throughout the country with modern cement factories. It has a work force…
NB Ltd. is India's largest manufacturer of cement. Its
operations are spread throughout the country with
modern cement factories. It has a work force of $\displaystyle 9,000$
persons.
Since its inception, the company has been a trendsetter
for the cement industry. The company is planning to
grow in the long-run and wants to double its capacity in
the next 3years.
For this the Finance Manager has to decide about the
quantum of finance to be raised from various long-term
sources. For this he needs to identify various available
sources of funds and the proportion of funds from each
source.
(i)
Identify the financial decision to be taken by the Finance
Manager.
(ii)
State any four factors which would affect the decision
identified in (i) above.
Myra Ltd., manufacturing televisions, is planning to
expand its business and requires ₹$\displaystyle 250$ crore for the same.
A number of projects are available to the company to
invest in and each project has to be evaluated carefully.
The Finance Manager of the company has assessed the
projects in terms of the rate of return from each project
and wanted to select the one with the higher rate of return.
But before selecting the project he has to take into
consideration other factors also.
(i)
Identify and state the financial decision discussed in the
above para graph.
(ii)
Explain two other factors that the Finance Manager
should consider before selecting the project.
Marking-scheme solution
(i)
Financing decision
Factors affecting financing decision :
(a)
The cost of raising funds through different sources are
different and a prudent financial manager would normally
opt for a source which is the cheapest.
(b)
The risk associated with each of the sources is different.
(c)
Higher the floatation cost, less attractive the source.
(d)
A stronger cash flow position may make debt financing
more viable than funding through equity.
(e)
If a business has high fixed operating costs, it must reduce
fixed financing costs, thus, lower debt financing is better.
(f)
Issues of more equity may lead to dilution of management’s
control over the business while debt financing has no such
implication.
(g)
State of the capital market may also affect the choice of
source of fund as during the period when stock market is
rising, more people invest in equity, whereas depressed
capital market may make issue of equity shares difficult for
any company.
Investment decision
The investment decision relates to how the firm’s funds are
invested in different assets.
(ii)
Two other factors that Dheeraj needs to consider before
selecting / rejecting any project:
Cash flows of the project
Investment criteria involved
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 2022 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.