"Kartikey approached Samiksha with the proposal to buy a machinery jointly which could be used by both of them without making separate investment”.

This statement represents which factor affecting the fixed capital requirements?

Level of collaboration

The correct answer is option 3- Level of collaboration.

The statement "Kartikey approached Samiksha with the proposal to buy a machinery jointly which could be used by both of them without making separate investment" represents the factor of Level of collaboration affecting fixed capital requirements.

Level of Collaboration involves working together with other entities to share resources or investments. By proposing to buy machinery jointly, Kartikey and Samiksha are collaborating to share the fixed capital investment needed for the machinery, which affects their overall capital requirements.

Level of collaboration: At times, certain business organisations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organisations.

OTHER OPTIONS

• Technology upgradation- In certain industries, assets become obsolete sooner. Consequently, their replacements become due faster. Higher investment in fixed assets may, therefore, be required in such cases. For example, computers become obsolete faster and are replaced much sooner than say, furniture. Thus, such organisations which use assets which are prone to obsolescence require higher fixed capital to purchase such assets.

• 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.

• Financing alternatives- A developed financial market may provide leasing facilities as an alternative to outright purchase. When an asset is taken on lease, the firm pays lease rentals and uses it. By doing so, it avoids huge sums required to purchase it. Availability of leasing facilities, thus, may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. Such a strategy is specially suitable in high risk lines of business.