Fixed capital requirements are determined by which of the following factor?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Nature of Business.
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.
Fixed capital refers to investment in long-term assets. Management of fixed capital involves the allocation of a firm’s capital to different projects or assets with long-term implications for the business. There are 8 factors affecting the fixed capital requirements-
(1) nature of business
(2) scale of operation
(3) choice of technique
(4) growth prospects
(5) financial alternatives
(6) level of collaboration
(7) Technology Upgradation
(8) Diversification