Read the following case study and answer question.
Aninjey is a CEO of Alfa Ltd. He is running a shoe business where his company is manufacturing canvas shoes, made up of breathable t-shirt fabric. His business is having a good liquidity position. He has already issued 200 equity shares earlier and has a company policy of paying regular dividends to its shareholders. He wants to expand his business and for that he required 100 crores. He asked his Finance Manager to prepare a financial blueprint of the same in order to have the right debt-equity ratio, so that a right financial balance can be maintained.
"Alfa Ltd. is manufacturing firm," Identify the factor affecting fixed capital highlighted in the statement.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Nature of Business
Option (1) Growth Prospects — Incorrect. This factor is about plans to grow and expand. The statement says nothing about growth; it only names the kind of firm.
Option (2) Nature of Business — Correct. The nature of business is the first factor affecting the need for fixed capital. A manufacturing firm needs plant and machinery, so it needs more fixed capital than a trading firm. “Manufacturing firm” describes the type of business.
Option (3) Financing Alternatives — Incorrect. This factor is about other ways of getting assets, such as leasing them instead of buying. The statement does not mention this.
Option (4) Choice of Technique — Incorrect. This factor is about using a capital-intensive or a labour-intensive method of production. The statement does not say which method is used.
NCERT (2026-27 Edition): “1. Nature of Business: The type of business has a bearing upon the fixed capital requirements. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organisation; since it does not require to purchase plant and machinery, etc.” |