Match List-I (reasons why fixed capital decisions are important) with List-II (what the book says):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Long-term growth | (I) | Abandoning a project after heavy investment is made is quite costly in terms of waste of funds. |
| (B) | Large amount of funds involved | (II) | The money put in these assets is likely to yield returns in later years and shape the future prospects of the business. |
| (C) | Risk involved | (III) | Fixed capital affects the returns of the firm as a whole in the long term. |
| (D) | Irreversible decisions | (IV) | A substantial portion of capital is blocked in projects, so a detailed analysis is undertaken first. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A)-(II), (B)-(IV), (C)-(III), (D)-(I)
| List-I | List-II | Reason |
|---|---|---|
| (A) Long-term growth | (II) The money put in these assets is likely to yield returns in later years and shape the future prospects of the business. | Funds put in long-term assets give returns in future years. So they shape the future of the business. |
| (B) Large amount of funds involved | (IV) A substantial portion of capital is blocked in projects, so a detailed analysis is undertaken first. | A big part of the capital gets locked in long-term projects. So such investment is planned only after careful study. |
| (C) Risk involved | (III) Fixed capital affects the returns of the firm as a whole in the long term. | Huge sums are put in, so a wrong choice hits the returns of the whole firm. So it decides how risky the firm is. |
| (D) Irreversible decisions | (I) Abandoning a project after heavy investment is made is quite costly in terms of waste of funds. | Such decisions cannot be undone without heavy loss. Dropping a project midway wastes the money already spent. |
NCERT (2026-27 Edition): “Management of Fixed Capital … Investment in these assets would also include expenditure on acquisition, expansion, modernisation and their replacement. These decisions include purchase of land, building, plant and machinery, launching a new product line or investing in advanced techniques of production. Major expenditures such as those on advertising campaign or research and development programme having long term implications for the firm are also examples of capital budgeting decisions. The management of fixed capital or investment or capital budgeting decisions are important for the following reasons:” “(i) Long-term growth: These decisions have bearing on the long-term growth. The funds invested in long-term assets are likely to yield returns in the future. These will affect the future prospects of the business.” “(ii) Large amount of funds involved: These decisions result in a substantial portion of capital funds being blocked in long-term projects. Therefore, these investments are planned after a detailed analysis is undertaken. This may involve decisions like where to procure funds from and at what rate of interest.” “(iii) Risk involved: Fixed capital involves investment of huge amounts. It affects the returns of the firm as a whole in the long-term. Therefore, investment decisions involving fixed capital influence the overall business risk complexion of the firm.” “(iv) Irreversible decisions: These decisions once taken, are not reversible without incurring heavy losses. Abandoning a project after heavy investment is made is quite costly in terms of waste of funds. Therefore, these decisions should be taken only after carefully evaluating each detail or else the adverse financial consequences may be very heavy.” |