Match the LIST-I with LIST-II
| LIST-I | LIST-II |
| (Decision) | (Factors affecting the decision) |
| A. Financing Decision | I. Interest Coverage Ratio (ICR) |
| B. Dividend Decision | II. Cash Flow Position of the Company |
| C. Capital Structure | III. Choice of Technique |
| D. Fixed Capital | IV. Shareholders' Preference |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) - (II), (B) - (IV), (C) - (I), (D) - (III)
(A) Financing Decision — this matches (II) Cash Flow Position of the Company. Debt brings fixed payments of interest and principal. A firm with a strong cash flow can meet them, so debt becomes a better choice than equity.
(B) Dividend Decision — this matches (IV) Shareholders’ Preference. Many shareholders depend on a regular dividend. Management keeps their wishes in mind when it decides how much profit to pay out.
(C) Capital Structure — this matches (I) Interest Coverage Ratio (ICR). ICR shows how many times the profit before interest and tax covers the interest. A higher ICR means less risk of failing to pay interest, so the company can use more debt in its capital structure.
(D) Fixed Capital — this matches (III) Choice of Technique. A capital-intensive technique needs heavy investment in plant and machinery, so it needs more fixed capital. A labour-intensive technique needs less.
Note: NCERT lists cash flow position as a factor of the dividend decision as well as the financing decision, so (II) could also fit (B). Only one option is consistent, however: shareholders’ preference affects only the dividend decision, so (B) must go with (IV), and (A) then takes (II). That gives Option (2).
NCERT (2026-27 Edition): “Factors Affecting Financing Decisions The financing decisions are affected by various factors. Important among them are as follows:” “Cash Flow Position of the Company: A stronger cash flow position may make debt financing more viable than funding through equity.” “Factors Affecting Dividend Decision How much of the profits earned by a company will be distributed as profit and how much will be retained in the business is affected by many factors. …” “Shareholders’ Preference: While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard. If the shareholders in general desire that at least a certain amount is paid as dividend, the companies are likely to declare the same. …” “Cash Flow Position: The payment of dividend involves an outflow of cash. A company may be earning profit but may be short on cash. Availability of enough cash in the company is necessary for declaration of dividend.” “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. …” “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. …” |