The correct answer is Option (2) → (A)-(I), (B)-(III), (C)-(IV), (D)-(II)
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List-I Decisions
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List-II Factors affecting the Decisions
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(A) Fixed Capital Decision
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(I) Diversification
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(B) Capital Structure Decision
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(III) Control on Business
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(C) Working Capital Decision
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(IV) Business Cycle
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(D) Capital budgeting decision
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(II) Cash flows of the project
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(A) Fixed Capital Decision: The requirement for Fixed Capital (investment in long-term assets) is heavily influenced by a firm's need to expand into new areas, which is Diversification.
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(B) Capital Structure Decision: This decision deals with the mix of debt and equity. A key factor is how much ownership and decision-making power the existing owners want to retain, which is affected by Control on Business. Issuing more equity dilutes control, while debt allows control to be retained (as long as payments are met).
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(C) Working Capital Decision: This decision deals with investment in current assets (inventory, receivables). The overall health of the economy, represented by the Business Cycle (boom or recession), significantly affects sales, inventory, and collection, thus influencing the working capital requirement.
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(D) Capital Budgeting decision: This decision involves whether to invest in a long-term project. The fundamental basis for evaluating any investment project is its expected Cash flows of the project (NPV, IRR are based on this).
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