Sahil Ltd. works in a high-risk line of business. Instead of buying costly machines outright, it takes them on lease and pays lease rentals. This lowers the funds it must invest in fixed assets.
Which factor affecting the requirement of fixed capital does this show?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Financing alternatives
Option (1) Financing alternatives — Correct. A developed financial market offers leasing as an alternative to outright purchase. Sahil Ltd. pays lease rentals and avoids the huge sum needed to buy the machines. This suits high risk lines of business like Sahil Ltd.’s.
Option (2) Level of collaboration — Incorrect. Here firms share each other’s facilities, such as one bank using another’s ATM. Sahil Ltd. leases its machines and shares nothing with other firms.
Option (3) Choice of technique — Incorrect. This is about whether a firm is capital intensive or labour intensive. A capital-intensive firm relies on machines and needs more fixed capital. Sahil Ltd. has not changed how it produces.
Option (4) Diversification — Incorrect. Diversification means starting new lines of operation, such as a textile company setting up a cement plant. It raises the fixed capital needed. Sahil Ltd. has not started any new line of business; it only leases its machines.
NCERT (2026-27 Edition): “6. Diversification: A firm may choose to diversify its operations for various reasons, With diversification, fixed capital requirements increase e.g., a textile company is diversifying and starting a cement manufacturing plant. Obviously, its investment in fixed capital will increase. |