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Business Studies · 2023 · 4 marks
CBSE 2023 · Region 5 · Set 1 · Q28
State any four factors affecting the decision that determines the overall cost of capital and the financial risk of the enterprise.
State any four factors affecting the decision that determines
the overall cost of capital and the financial risk of the enterprise.
Marking-scheme solution
The four factors affecting the decision that determines the
overall cost of capital and the financial risk of the enterprise
(Financing decision) are:
(i)
Cost of different sources of finance as some sources may be
cheaper than others.
(ii)
Risk associated with different sources of finance is different.
(iii)
Higher the floatation costs, less attractive the source.
(iv)
A stronger cash flow position may make debt financing more
viable than funding through equity.
(v)
With higher fixed operating costs, lower fixed financing costs
should be opted for.
(vi)
Issue of more equity may lead to dilution of management’s
control over the business.
(vii)
State of the capital market is considered while taking financing
decision as in a depressed capital market, issue of equity shares may
be difficult.
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CBSE Class 12 Business Studies past-paper question from the 2023 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.