The correct answer is option (3)- A-III, B-II, C-IV, D-I.
| List I |
List II |
| A. Interest Coverage Ratio |
III. Capital structure |
| B. Choice of Technique |
II. Fixed Capital |
| C. Credit Allowed |
IV. Working Capital |
| D. Capital budgeting decision |
I. Rate of return |
A. ICR is one of the factor affecting Capital Structure.
Interest Coverage Ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a company covers the interest obligation. This may be calculated as follows:
EBIT/ Interest. The higher the ratio, lower shall be the risk of company failing to meet its interest payment obligations. However, this ratio is not an adequate measure. A firm may have a high EBIT but low cash balance. Apart from interest, repayment obligations are also relevant.
B. Choice of technique is one of the factor determining Fixed Capital.
Choice of Technique: Some organisations are capital intensive whereas others are labour intensive. 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.
C. Credit allowed is one of the factor affecting Working Capital.
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.
D. Capital budgeting decisions are affected by the rate of return.
The rate of return: The most important criterion in long term investment decision is the rate of return of the project. These calculations are based on the expected returns from each proposal and the assessment of the risk involved. Suppose, there are two projects, A and B (with the same risk involved), with a rate of return of 10 percent and 12 percent, respectively, then under normal circumstances, project B should be selected. | 
